Whether you’re a day trader, swing trader, or long-term investor, finding the best stocks to trade is one of the most difficult tasks you will be faced with. If you want to be profitable, you must be able to determine which stocks are worth keeping on your radar for further analysis and which are better off left alone.
And let’s face it, the sheer number of companies on the market can make identifying a good stock rather daunting. The vast amounts of data available on the internet can overwhelm even the most seasoned traders. The fact of the matter is, there is simply too much information for any one person to sort through, but fortunately, you don’t have to, thanks to stock screeners.
What is a stock screener, and how does it work?
People had to rely on the stock tables of newspapers and financial magazines to get all of their information on the companies they wanted to trade before personal computers and electronic trading was created. Their daily tasks would have entailed sifting through hundreds of pages of corporate records and reading financial statements to determine if the stock was ripe for picking. Thankfully, things have progressed since then.
Most experienced traders nowadays use stock screeners to help them scan the market and locate stocks that fit within their strategy’s parameters. So, how do they work? Well, they act as a filter, reducing a vast database of stocks into a more manageable list that you can use to conduct deeper analysis.
The best stock screeners allow you to search the market for just about any metric or set of criteria that you wish. You can be as vague or as specific as you like depending on your strategy and the kind of stock you are looking for. Traders commonly focus on measurable factors that affect a stock’s price, such as:
- Market capitalization
- Profit margins
- P/E ratio
With that in mind, let’s take a look at some of the key benefits of using a stock screener:
When trading, time is money. The more time you spend scanning the market for the right stock to trade, the fewer opportunities you will have to make a profit. The problem is, there are currently 630,000 companies traded publicly throughout the world, making manually screening them pretty much impossible. It would simply take far too long to examine each company’s financial statements and potential growth prospects using just your own brainpower.
Stock screeners solve this problem as they filter out stocks that don’t follow your trading strategy in a matter of minutes. This leaves you with a much more manageable list of stocks that you can use to conduct further research.
Any professional trader will be quick to tell you that emotional investing is a big no-no. As soon as you let emotions such as fear, greed, and frustration dictate your decision-making, you’re going to start burning through your trading balance in relatively short order.
This is because emotional decisions are rarely based on logic. Most of the time, they are based on flawed thinking or even unconscious behavioral biases that can be hard to detect. This leads traders to make costly mistakes over and over again that are difficult to diagnose.
Fortunately, a stock screener goes a long way to eliminating this issue as it filters the market based on logical parameters rather than emotion and bias.
Uncovers investments you might have otherwise missed
As we mentioned, there are hundreds of thousands of stocks traded across the globe, yet most traders tend to focus on only a handful of stocks that they are familiar with. Unfortunately, this means they are potentially missing out on vast numbers of profitable trading opportunities.
A screener will help you uncover potential investments that you would otherwise overlook. This opportunity to find unpopular stocks gives you a significant edge over the rest of the market since you have a much higher chance of finding undervalued stocks with growth potential.
One of the most daunting things traders face is finding hot stocks to trade and coming up with new trading ideas, and who can blame them? There is an overwhelming amount of stocks on the exchanges, and it is practically impossible to analyze and compare each one of them.
Fortunately, with the rise of modern technology and big data analytics, you no longer have to. Stock screeners offer an excellent way to find profitable trading opportunities in an impartial, unbiased manner – all in a matter of minutes. All you have to do is enter your predetermined set of criteria that suits your trading strategy, and the screener will present you with a custom list of stocks that fit those metrics.
It’s safe to say that if you aren’t using a stock screening tool to aid your trading decision-making, you will likely be at a considerable disadvantage to the rest of the pack.