What Is a Stock Screener?
A stock screener is a tool that investors and traders can use to filter stocks based on user-defined metrics. Stock screeners exist either for free to a subscription price on certain websites and trading platforms. They allow users to select trading instruments that fit a particular profile or set of criteria. For example, users are able to screen for stocks by their price, market capitalization (market cap), price-to-earnings or P/E ratio, dividend yield, 52-week price change percentage, average volume, and average five-year return on investment (ROI), among others.
Some trading platforms and software allow users to screen using technical indicator data. For example, one could filter for stocks that are trading above their 200-day moving average or whose Relative Strength Index (RSI) values are between a specified range.
Stock Screener Explained
Many investors use screeners to find stocks that are poised to perform well over time. Active traders may use stock screening tools to find high probability set-ups for short-term positions. Users can enter a varying number of filters; as more filters are applied, fewer stocks will be displayed on the screener. Stock screeners allow investors and traders to analyze hundreds of stocks in a short period of time, making it possible to weed out those stocks that don't meet the user's requirements and focus on the instruments that are within the defined metrics.
Stock Screener and Trading Strategies
Stock screeners can help many investors with their trading strategies. A trading strategy is a set of rules that an investor sets. Any trade entry and exit must meet the rules in order to complete. Specifications could include the size of trade entries, filters on stocks, particular price triggers, and more. Investors might use historical data, such as past earnings results, analyst estimates, and technical indicators to project future performance.
While strict rule-based trading strategies are helpful in avoiding personal biases and emotional reactions to broad market or individual securities movements, it can be easy to become overly reliant on a strategy and not bring qualitative elements into the process. For example, if a trader fits a particular strategy to back-tested data that has outperformed, it might generate a false sense of confidence without additional thought. Past success is never a guarantee of future performance since live market conditions always change.
Some trading strategies are categorized as fundamental; these ones rely on fundamental factors like revenue growth, profitability, debt levels, and availability of cash.