A screener (or scanner) is a tool that allows you to sort through the market to find stocks with certain criteria. Just like indicators, screeners are part of your preference and just because someone else likes a screener and has success with it, it does not mean you will certainly find success with it. It is important to explore screeners and do your own research and testing to find which screeners are the best for you. In this section, I will give some basic ideas of how to find good stocks using a screener.
Where Do You Find Screeners?
Many screeners must be paid for but there are some that are free to use. On top of this, when looking for a screener you want to decide if you want to use a passive or active screener. A passive screener is always finding new stocks that fit your specific criteria, but the free ones offered often do not have as many filters available to them. An active screener is not constantly updating but usually have more filters for their free versions.
For a free passive screener, Yahoo! Finance has a pretty good built in program. It allows you to create and save your own screeners, or use pre-built screeners that are created by Yahoo!. However as mentioned before, this screener does not have the best filters and contains very few filters for Technical Analysis. If you are an investor who favors Fundamental Analysis, this is a great passive screener you can use.
For a free active screener, most traders will send you over to Finviz. The free Finviz screener has 67 filters you can use to help find the perfect stocks for you. It has a great mix of both Fundamental and Technical filters that can help nearly every investor find the perfect stocks for them. The only downside is that if you are not on the site/do not have your filters set, the screener is not looking for stocks and you may miss some opportunities. Despite this, Finviz is still one of the most popular screeners for investors everywhere.
How Do You Use a Screener?
When using a screener, there are some basic recommendations that most traders would follow. While they are broad suggestions, they do offer somewhere to start for people who are just beginning. And with that being said, here are 3 basic starting points for every screener:
1.) Screen for Cheapness: It’s important to find cheap stocks to buy. You want to buy a
stock when it is cheap, not expensive. This can be done by using ratios, or
comparing a stock’s price to another value. The most common are P/B
(Price-to-Book-Value) and P/E (Price-to-Equity). Low P/B is considered anything
under 3 and low P/E is anything under 15. Another good way to find cheap stocks is
through screening for low RSI. Ideally, you want an RSI of under 30 but very few
stocks are under 30, so you may have to screen for stocks with an RSI under 40.
2.) Screen for Low Risk: It’s important to find stocks that you aren’t going to lose all your
money after buying. This can be done by screening for a company that is good at
managing their money, such as good ROI, ROE, or ROA (Return on
Investment/Equity/Assets). You can also screen for stocks in specific sectors that are
performing well to manage risk. On top of this, it is important to find stocks that
have a good amount of volume. Without volume, you may not be able to sell your
shares and be stuck in a position that causes you to lose money.
3.) Screen for Higher Growth: It’s important to find stocks that have the ability to grow
larger and faster. This can be done by screening for stocks that have already
increased in order to play off momentum. Also, you can use something called Beta
to find stocks that are moving faster than the market. The higher the beta is, the
faster it is moving compared to the market but the risk is also increased.
After all of these filters are put into a screener, you will most likely be left with a list of stocks. After that, you must at least quickly look at each chart to determine if
the stock has potential or not. You can then add these stocks to a watchlist, or a list of
stocks you are considering to buy, and later decide whether or not you want to buy it.
Now, you hopefully know what a screener is and how to use it properly. It is crucial to remember that screeners are specific to your strategy, and just because another traders sees success with their screener, it does not mean you will certainly succeed with it too. Finding the screener best fit to your strategy/trading style is an important part of every investor's arsenal.