What is stock screener? A primer to get you started

Understanding stock screener

A stock screener comprises various tools enabling investors to efficiently sift through numerous stocks and exchange-traded funds based on their specific criteria. These tools are commonly found on brokerage platforms for free, with some independent subscription-based options also available. Investors can use stock screeners to apply their own criteria for identifying valuable stocks or ETFs for longer-term investment strategies, or to spot potential trading opportunities for shorter-term trading strategies.

What is the function of stock screeners?

Stock screeners empower investors to sift through a vast array of potential financial assets based on their own specific criteria. Users kickstart this process by setting particular investing parameters aligned with their individual needs. For instance, a fundamental investor might prioritize market capitalization, analyst recommendations, earnings per share (EPS), operating cash flow, multi-year return on investment (ROI), dividend yield, and similar metrics.

As users add more criteria, the pool of potential securities for investment shrinks. In essence, stock screeners cater to a wide range of investor needs and should be utilized to explore available information before making any trade or investment decisions.

Technical analysis and stock screeners

Some stock screeners offer integration with technical analysis tools, enhancing the precision of stock selection methods. This transforms the stock screener into more of a technical analysis tool rather than just a filter for identifying potential securities. These analytical tools serve as quantitative measures, enabling investors to delve into price movements and market dynamics. Stock screeners may incorporate various technical indicators, including:

Moving averages

These are crucial for trend analysis, smoothing out price data over a specific period to identify trends once a selected security is clicked into.

Relative Strength Index (RSI)

A momentum oscillator that assesses whether a stock is overbought or oversold, often displayed over time for a specific security.

Moving Average Convergence Divergence (MACD)

This trend-following momentum indicator helps identify changes in momentum and potential trend reversals.

Bollinger bands

Utilized to identify volatility and potential price breakouts, with stock prices approaching or touching the outer bands indicating heightened volatility.

Illustration of a stock screening tool

When you initially encounter a stock screener, it can be overwhelming due to the numerous categories available on both the technical and fundamental sides. Before delving in, determine whether you lean towards technical analysis or fundamental analysis. Consider your goals, priorities, and the types of financial instruments you're interested in. Then, explore the screener's features accordingly.

For short-term focus, technical tools like charting, alerts, momentum studies, and RSI may be appealing. Setting alerts for specific price levels or RSI conditions on a chosen stock or ETF can be useful.

Long-term investors will find fundamental data like EPS, average daily volume, and market capitalization valuable. This data aids in constructing a portfolio with a longer-term perspective beyond short-term market fluctuations.

Guidelines for utilizing stock screeners

Here are some tips to consider when using stock screeners for your investment research:

• Master the use of boolean logic (AND, OR, NOT) in your screening criteria to refine filters and narrow down stock selections more accurately.
• Determine and prioritize key financial ratios based on your investment strategy, such as Price-to-Earnings (P/E) ratio, debt-to-equity ratio, or current ratio.
• Incorporate trading volume as a parameter to ensure smoother order execution with stocks that have higher liquidity.
• If income generation is a priority, include dividend yield as a screening criterion to identify stocks with attractive dividend payouts relative to their price.
• Customize your screening by specifying market capitalization ranges to focus on stocks aligning with your risk preferences.
• Utilize analyst ratings and recommendations in your screening process for additional insights into a stock's potential performance.If environmental, social, and governance (ESG) factors are important, use screeners that allow filtering based on sustainability and ethical considerations, but note the varying definitions across platforms.

Commonly used stock screening tools

Numerous stock screeners are available, with three of the most popular ones being widely adopted by both inexperienced and experienced investors.

Advantages and disadvantages of free vs. paid stock screening tools

Free stock screening tools typically provide fundamental features, making them ideal for occasional investors. In contrast, premium stock screeners offer advanced tools, expanded screening options, and improved data analysis capabilities. Some free versions allow users to save screening criteria in a profile, but the complete functionality might be restricted.

Utilizing API integration for automated stock screening

API integration within stock screeners enables users to link with external data sources and automate specific functions. This technology empowers investors to establish pre-set rules, obtain live updates, and automate activities such as executing trades or sending alerts.