A Beginner’s Guide to Choosing the Right Stock Scanner for Your Trading Strategy

If you are a trader, you know how challenging and time-consuming it can be to find the best stocks to trade. With thousands of stocks listed on the market, how do you narrow down your choices and pick the ones that match your trading strategy and goals?

This is where a stock scanner can come in handy. A stock scanner is a tool that allows you to scan the market and filter stocks based on your own criteria and preferences. For example, you can use a stock scanner to find stocks that have a certain price range, volume, earnings, trend, pattern, signal, etc.

Using a stock scanner can help you save time, avoid analysis paralysis, and discover new opportunities. However, not all stock scanners are created equal. There are different types of stock scanners, each with its own features, advantages, and disadvantages. How do you choose the right stock scanner for your trading strategy?

In this post, we will cover the following topics:

• The types of stock scanners and how they can be used for different trading strategies and goals.
• The features to look for in a stock scanner and how they can enhance your trading experience and performance.
• The tips to use a stock scanner effectively and avoid common pitfalls.

By the end of this post, you will have a better understanding of how to choose and use a stock scanner for your trading strategy. Let’s get started!

Types of Stock Scanners

There are two main types of stock scanners: fundamental and technical.

Fundamental Stock Scanners

A fundamental stock scanner is a tool that allows you to scan and filter stocks based on their financial performance and valuation. For example, you can use a fundamental stock scanner to find stocks that have a certain earnings per share (EPS), revenue, market cap, dividend yield, price-to-earnings ratio (P/E), etc.

A fundamental stock scanner can help you find stocks that are undervalued or overvalued, have strong growth potential or stability, pay regular dividends, or have high returns on equity (ROE), etc.

A fundamental stock scanner is suitable for traders who follow a long-term or value-oriented trading strategy. These traders look for stocks that have solid fundamentals and are likely to appreciate in value over time. They are not concerned with short-term price fluctuations or technical indicators.

Some examples of fundamental indicators that can be used to filter stocks are:

• Earnings: The amount of profit that a company makes in a given period. Earnings can indicate the financial health and growth potential of a company. A higher earnings growth rate or surprise can boost the stock price.
• Revenue: The amount of money that a company generates from its sales or services in a given period. Revenue can indicate the demand and market share of a company. A higher revenue growth rate or surprise can also boost the stock price.
• Market Cap: The total value of all the shares of a company in the market. Market cap can indicate the size and influence of a company. A higher market cap can imply more stability and liquidity.
• Dividend Yield: The ratio of the annual dividend paid by a company to its share price. Dividend yield can indicate the income potential and sustainability of a company. A higher dividend yield can attract investors who are looking for passive income.
• Price-to-Earnings Ratio (P/E): The ratio of the share price of a company to its earnings per share (EPS). P/E can indicate the valuation and growth expectations of a company. A lower P/E can imply that the stock is undervalued or has higher growth potential.

Some pros and cons of using a fundamental stock scanner are:

• Pros:
  • It can help you find stocks that have strong fundamentals and long-term value.
  • It can help you avoid stocks that are overvalued or have poor financial performance.
  • It can help you diversify your portfolio and reduce your risk exposure.
• Cons:
  • It can be time-consuming and tedious to analyze the financial statements and reports of different companies.
  • It can be difficult to compare stocks across different industries or sectors that have different accounting standards or metrics.
  • It can be affected by external factors or events that are not reflected in the financial data, such as news, rumors, scandals, etc.

Some examples of fundamental stock scanners are:

• Finviz: A popular web-based platform that offers various tools for traders, including a powerful fundamental stock screener. You can use Finviz to scan stocks based on hundreds of fundamental criteria, such as EPS growth, sales growth, ROE, P/E, dividend yield, etc. You can also view charts, news, insider trading, analyst ratings, etc.
• Benzinga Pro: A browser-based platform that provides fast and actionable stock market news and analysis. You can use Benzinga Pro to scan stocks based on various fundamental criteria, such as earnings, revenue, market cap, dividend yield, analyst ratings, etc. You can also view newsfeeds, alerts, watchlists, etc.
• Stock Rover: A web-based platform that provides comprehensive and in-depth analysis of stocks based on their fundamentals. You can use Stock Rover to scan stocks based on over 650 fundamental metrics, such as growth, value, quality, profitability, efficiency, etc. You can also view charts, reports, ratings, rankings, etc.

Technical Stock Scanners

A technical stock scanner is a tool that allows you to scan and filter stocks based on their price movements and patterns. For example, you can use a technical stock scanner to find stocks that have a certain price range, volume, moving average, trendline, breakout, candlestick pattern, indicator signal, etc.

A technical stock scanner can help you find stocks that are in a favorable or unfavorable position to trade based on your trading strategy and goals. For example, you can use a technical stock scanner to find stocks that are trending up or down, breaking out or breaking down, bouncing off or breaking through support or resistance levels, forming bullish or bearish patterns or signals, etc.

A technical stock scanner is suitable for traders who follow a short-term or momentum-oriented trading strategy. These traders look for stocks that have high volatility and liquidity and are likely to move in a certain direction or reach a certain target in a short period of time. They are more concerned with price action and technical indicators than fundamentals.

Some examples of technical indicators that can be used to filter stocks are:

• Price: The current or historical value of a stock in the market. Price can indicate the supply and demand of a stock and its relative strength or weakness. A higher price can imply more bullishness or buying pressure, while a lower price can imply more bearishness or selling pressure.
• Volume: The number of shares traded in a given period. Volume can indicate the interest and activity of a stock and its potential to move further. A higher volume can imply more momentum or confirmation, while a lower volume can imply more consolidation or divergence.
• Moving Average: The average price of a stock over a certain period. Moving average can indicate the trend and direction of a stock and its support or resistance level. A rising moving average can imply an uptrend or bullishness, while a falling moving average can imply a downtrend or bearishness.
• Trendline: A line drawn on a chart that connects the highs or lows of a stock over a certain period. Trendline can indicate the direction and strength of a stock and its support or resistance level. A rising trendline can imply an uptrend or bullishness, while a falling trendline can imply a downtrend or bearishness.
• Breakout: A situation where a stock moves above or below a certain level that has been acting as a support or resistance for a long time. Breakout can indicate the start of a new trend or movement and its potential to continue further. A breakout above resistance can imply bullishness or buying pressure, while a breakout below support can imply bearishness or selling pressure.
• Candlestick Pattern: A graphical representation of the price action of a stock in a given period using four elements: open, high, low, and close. Candlestick pattern can indicate the sentiment and psychology of the market participants and their potential actions. A bullish candlestick pattern can imply bullishness or buying pressure, while a bearish candlestick pattern can imply bearishness or selling pressure.
• Indicator Signal: A mathematical calculation based on the price and/or volume of a stock that generates an output value or signal. An indicator signal can indicate the momentum, trend, strength, volatility, etc. of a stock and its potential to change direction or reach a certain level. A bullish indicator signal can imply bullishness or buying pressure, while a bearish indicator signal can imply bearishness or selling pressure.

Some pros and cons of using a technical stock scanner are:

• Pros:
  • It can help you find stocks that have high volatility and liquidity and are likely to move in your favor in a short period of time.
  • It can help you avoid stocks that are in a sideways or choppy market condition that are difficult to trade.
  • It can help you identify entry and exit points and set stop-loss and take-profit levels for your trades.
• Cons:
  • It can be overwhelming and confusing to use too many indicators or parameters to scan stocks.
  • It can be prone to false signals or whipsaws that can lead to losses or missed opportunities.
  • It can be affected by external factors or events that are not reflected in the price action, such as news, rumors, scandals, etc.

Some examples of technical stock scanners are:

• Trade Ideas: A desktop-based platform that offers advanced artificial intelligence and machine learning tools for traders, including a technical stock screener. You can use Trade Ideas to scan stocks based on various technical criteria, such as price action, volume spikes, unusual activity, relative strength, etc. You can also view charts, alerts, backtests, optimizers, etc.
• Scanz: A desktop-based platform that offers fast and actionable stock market data and analysis. You can use Scanz to scan stocks based on various technical criteria, such as price range, volume range, moving average crossover, trendline breakout, candlestick pattern, indicator signal, etc. You can also view newsfeeds, alerts, watchlists, etc.
• TradingView: A popular web-based platform that offers various tools for traders, including a powerful technical stock screener. You can use TradingView to scan stocks based on hundreds of technical criteria, such as price range, volume range, moving average crossover, trendline breakout, candlestick pattern, indicator signal, etc. You can also view charts, news, alerts, watchlists, etc.

Features to Look for in a Stock Scanner

Now that you know the types of stock scanners and how they can be used for different trading strategies and goals, you might be wondering how to choose the best stock scanner for your needs. There are many stock scanners available in the market, each with its own features, advantages, and disadvantages. How do you compare and evaluate them?

Here are some of the essential features that a good stock scanner should have:

Customizability

One of the most important features of a stock scanner is its customizability. A stock scanner should allow you to create and save custom scans based on your own criteria and preferences. You should be able to choose from a wide range of fundamental and technical indicators and parameters and adjust them according to your trading style and market conditions. You should also be able to sort and filter the results based on different factors, such as price change, volume change, market cap, sector, industry, etc.

Customizability can help you find the most relevant and suitable stocks for your trading strategy and goals. It can also help you avoid irrelevant or unsuitable stocks that might clutter your screen or distract your attention.

Usability

Another important feature of a stock scanner is its usability. A stock scanner should be easy to use and navigate. The interface and the tools should be user-friendly and intuitive. You should be able to access and operate the stock scanner without any hassle or difficulty. You should also be able to view and analyze the results without any delay or lag.

Usability can help you save time and energy. It can also help you avoid frustration or confusion that might affect your trading decisions or performance.

Reliability

Another important feature of a stock scanner is its reliability. A stock scanner should provide accurate and timely data and results. The data and the results should be updated regularly and reflect the current market situation. The data and the results should also be consistent and reliable across different sources and platforms.

Reliability can help you trust and rely on the stock scanner. It can also help you avoid errors or mistakes that might lead to losses or missed opportunities.

Compatibility

Another important feature of a stock scanner is its compatibility. A stock scanner should be compatible and integrated with other platforms and devices that you use for your trading activities. For example, you should be able to link your stock scanner with your broker account and execute trades directly from the scanner. You should also be able to sync your stock scanner with your charting software and view the charts of the scanned stocks. You should also be able to access your stock scanner from different devices, such as desktops, laptops, tablets, or smartphones.

Compatibility can help you streamline and simplify your trading process. It can also help you stay connected and updated with the market and your trades from anywhere and anytime.

Tips to Use a Stock Scanner Effectively

Now that you know the features to look for in a stock scanner and how to choose the best one for your needs, you might be wondering how to use it effectively and avoid common pitfalls. Here are some best practices and tips on how to use a stock scanner effectively:

Define Your Trading Strategy and Goals Before Using a Stock Scanner

Before you use a stock scanner, you should have a clear idea of what kind of stocks you are looking for, what time frame you are trading on, what risk-reward ratio you are comfortable with, etc. You should have a trading plan and rules that guide your trading decisions and actions.

Defining your trading strategy and goals can help you create and use custom scans that match your criteria and preferences. It can also help you avoid scanning for stocks that are irrelevant or unsuitable for your trading style and objectives.

Test and Tweak Your Scans Regularly

After you create your custom scans, you should test and tweak them regularly to see how they perform in different market conditions and scenarios. You should experiment with different indicators and parameters to find the optimal combination that suits your trading style and goals. You should backtest your scans on historical data to see how they performed in the past.

Testing and tweaking your scans can help you improve their accuracy and effectiveness. It can also help you avoid overfitting or underfitting your scans to specific situations or data sets.

Use Multiple Scans for Different Purposes

Instead of using one scan for all purposes, you should use multiple scans for different purposes. For example, you can use one scan to find potential trade setups, another scan to monitor existing positions, and another scan to identify exit signals or stop-loss levels.

Using multiple scans can help you cover different aspects of your trading process. It can also help you avoid missing out on opportunities or risks that might not be captured by one scan.

Combine Fundamental and Technical Analysis

While you can use either fundamental or technical stock scanners depending on your trading strategy and goals, it is often beneficial to combine both types of analysis to get a comprehensive view of the stocks you are interested in. You can use fundamental analysis to find stocks that have strong fundamentals and long-term value, and technical analysis to find stocks that have favorable price movements and patterns.

Combining fundamental and technical analysis can help you find stocks that have both quality and momentum. It can also help you avoid stocks that have weak fundamentals or unfavorable technicals.

Be Selective and Disciplined

Finally, when you use a stock scanner, you should be selective and disciplined. You should not chase every stock that shows up on your scan. You should do your own due diligence and research before entering a trade. You should follow your trading plan and rules and not let emotions or biases influence your decisions.

Being selective and disciplined can help you avoid overtrading or undertrading. It can also help you avoid losses or maximize profits.

Conclusion

A stock scanner is a powerful tool that can help you find the best stocks to trade based on your criteria and preferences. However, not all stock scanners are created equal. There are different types of stock scanners, each with its own features, advantages, and disadvantages.

In this post, we have covered the following topics:

• The types of stock scanners: fundamental and technical.
• The features to look for in a stock scanner: customizability, usability, reliability, and compatibility.
• The tips to use a stock scanner effectively: define your trading strategy and goals, test and tweak your scans, use multiple scans, combine fundamental and technical analysis, be selective and disciplined.

We hope that this post has helped you learn how to choose and use a stock scanner for your trading strategy. If you have any questions or feedback, please feel free to leave a comment below.

If you enjoyed this blog post and want to learn more about the differences between fundamental and technical stock scanners, you might want to check out our other blog post: Fundamental vs Technical Stock Screeners: Which One Should You Use? In this post, you will find out the pros and cons of each type of stock scanner and how to combine them for optimal results. Don’t miss this opportunity to improve your trading skills and knowledge!