Update – Since this post was originally published on January 16, 2019, TrendSpider has built and released its own Market Scanner. The TrendSpider Market Scanner is a ground-breaking new scanning and screening tool designed to help traders search the market. We have internally dubbed it “Google, for stock charts.” It can search for any technical conditions you can dream of, on any timeframe down to the 1 minute chart, in real-time. Beyond that, it also will generate dynamic watchlists and help you refine your search criteria in an easy-to-use interface that is directly integrated into your TrendSpider charts, analysis, backtesting, and alerts. If you are in the market for a Market Scanner or screener, please check out the TrendSpider Market Scanner. You won’t be disappointed.
Original post below:
It’s hard to find investment opportunities among the roughly 7,500 public companies around the world. If you spent just one minute analyzing each chart, it would take you 125 hours—or 15 full-time days—to work through every company. Long-term investors can spend hours reading through regulatory filings for a single company to piece together an investment thesis. Fortunately, stock screeners can help you efficiently narrow down your options.
Stock screeners, also known as stock scanners, enable you to filter ideas based on certain attributes. For example, active traders can use technical stock scanners to find high-volume breakouts and investors can use fundamental stock screeners to find undervalued companies.
Let’s take a look at how stock screeners work and some of the best options for both active traders and long-term investors.
How Stock Screeners Work
Stock screeners have a database of companies that are associated with both fundamental and technical data points. For example, a stock scanner may record the volume-weighted price change for each of the 7,500 public companies. A trader could then sort the companies based on the biggest to smallest volume-weighted price change to find opportunities. The same concept could sort companies by their price-to-earnings to growth (PEG) ratio or other metrics.
The first step is identifying criteria that you want in an investment:
- Do you prefer small-cap or large-cap stocks?
- Are you concerned with technical or fundamental analysis?
- Do factors like short interest or earnings dates matter?
The second step is choosing the right parameters for these data points:
- Show me companies with market caps between $2 billion to $10 billion.
- Show me double-top chart patterns with a >5% decline in price.
- Show me companies with a low level of short interest.
The third step is browsing the results for opportunities and making any adjustments to the criteria. For example, you may realize that you were too strict, and no companies match the criteria, or you may want to further narrow down the results list.
Example Stock Screen
Let’s take a look at an example screen from Finviz:
After entering the criteria and running the screen, the 7,500 companies were reduced to just three opportunities meeting a specific set of criteria. The criteria involved looking for small-cap companies with a low PEG ratio, high return on equity, and a ten percent increase in price over the past week—indicating some level of market traction.
Pre-Built vs. Custom Screens
The biggest challenge with using stock screeners is knowing what to screen for—there are thousands of different variables and combinations.
Many stock screeners provide prebuilt screens designed to provide some kind of starting point for traders or investors. For example, Morningstar’s Premium Stock Screener includes prebuilt screens like Wide Moat + Undervalued and Medalist ETFs. These screens have a pre-built set of criteria that were developed by experts.
Other stock screeners operate more like computerized trading programs. For example, TradeStation’s Stock Scanner enables traders to use EZ-Language to define specific criteria and then use those criteria to narrow down a list of stocks. Many of these plugins are provided in the TradeStation TradingApp Store and target a wide range of markets.
The choice between pre-built and custom screeners depends largely on your specific needs. If you already have specific criteria in mind, you may want to use custom screeners that provide enough flexibility to narrow down your choices. If you don’t have much in mind, prebuilt screeners can help you get started generating ideas very quickly with minimal effort.
Limitations to Remember
Stock screeners are a great tool for narrowing down companies and stocks of interest, but there are some important limitations to remember.
- Qualitative Factors: Stock screeners generally focus on quantitative factors since they can be easily searched and ranked. Of course, this doesn’t mean that you should ignore qualitative factors. A pending lawsuit or FDA approval date could have a significant impact on near-term prices but won’t be reflected in qualitative data.
- Industry Differences: Stock screeners apply the same criteria across all stocks unless you specify otherwise. This can be a problem when industries differ by nature. For example, tech stocks won’t appear as often on value screens and real estate companies won’t appear as often on low-debt screens.
- Update Schedule: It’s important to make sure that your stock screener’s data sources are up-to-date. For example, traders seeking short-term opportunities shouldn’t use a screener with end-of-day data points.
Best Technical Stock Screeners
StockFetcher is a powerful and easy-to-use scanner that lets you use plain English phrases to define custom screens. For example, “show stocks where MACD Fast Line(12,26,9) crossed bearish MACD Slow Line(12,26,9)”. There are also several popular pre-built screens to help you get started.
The free version shows you the first five results of a screen, but the full version starts at $8.95 per month.
ChartMill offers one of the most comprehensive technical scanners in the market. In addition to basic technical factors, there are pre-built screens for things like “short squeeze setups” and “pocket pivot points”.
There is limited functionality in the free plan, while memberships start at $29.97 per month.
CandleScanner is Windows charting package that helps traders screen for specific candlestick patterns and backtest those patterns’ performance over time. You can even design your own strategies and simulate transactions.
The company offers a free trial, but the full version starts at $99.00.
Best Fundamental Stock Screeners
Finviz is one of the most popular stock screeners for both technical traders and fundamental investors. The screener includes a wide range of criteria, as well as pre-built screens to help you get started.
The basic screener can be used free of charge with no limitations, but advanced traders can access statistics, custom filters, and data export functionality for $24.96 per month.
Old School Value
Old School Value is a stock screener designed to help value investors find opportunities. Unlike most screeners, it’s focused on metrics like net working capital, cash return on invested capital, and Graham formula components.
The company lets investors analyze Apple, Amazon, and Microsoft for free, but prices start at $59 per month for full access.
Morningstar is a popular screener for finding the best mutual fund and exchange-traded fund (ETF) opportunities. In addition to standard screening factors, the company offers its own proprietary factors to include in any screens.
Free registration is required to access the basic screener, but advanced users may want to purchase a premium subscription, which starts at $149 per month.
The Bottom Line
Stock screeners can help narrow down opportunities based on a set of pre-built or custom criteria. If you’re unsure of where to start, pre-built stock screeners can be very helpful for coming up with ideas. As you become more comfortable, customizable screeners can help you define your own set of criteria and even backtest those criteria to build profitable trading strategies.