Finding stocks that are winners isn't a natural process with hundreds of companies listed on exchanges. That's why many traders turn to stock screeners with specific parameters to look for trading opportunities. Here are a few tips for beginners when it comes to setting useful filters to make the most of any stock screener.
Setting Your Criteria
Stock screeners use a process of elimination only to show you stocks you're interested in based on the financial criteria you entered. Finviz has a great stock screener that's easy to use. First, you'll have to decide whether you want to look at large-cap or small-cap stocks. Then you'll have to decide what price-to-earnings ratio is acceptable for you. Finally, you'll need to specify if you're looking for companies at an all-time high or companies that have dipped drastically in price.
What to Screen For
The Finviz free screener has some interesting options that aren't available in other online screeners. Those options include top gainers, recent insider buying, and wedges. The first two are great for finding stocks that might be in an upward trend. Overall screeners are flexible in what they allow you to search for and filter out, so you should get acquainted with one to help you find your plays. Yahoo! Finance also offers a free screener that isn't as robust as Finviz, but still a valuable resource for newbie traders.
Stock Screener Limitations
As with everything in the world of trading, stock screeners aren't the be-all-end-all solution of finding winning picks. You should be aware of their limitations, too. Most stock screeners only includes quantitative factors. No stock screener can tell you about customer satisfaction, pending lawsuits, or labor problems the company may be experiencing. One downfall of stock screeners is they rely on a database of information that must be updated frequently. Many free stock screeners like Finviz offer an upgraded version of their product where the database is updated more regularly as an incentive to pay for their service. Always check out fresh the data is before basing your moves around it. Finally, keep an eye out for blind spots in any industry in which you may be interested.
Start Broad and Run Several Concurrent Searches
Most financial investors will have several instances of stock screeners running at once with different parameters for each search. You should start broad with your criteria before narrowing it down to a more manageable number through limits like geographical region, market cap, sector, industry, and other parameters.
Set Selling Points
Before you ever buy a stock, you've found via the screener, you should have an exit point in mind and be prepared to execute it, otherwise it could cost you a significant amount of money in the long-run. Many analysts believe that a strong sell discipline is an even better asset than buy discipline as it’s how you avoid costly runs. The variables you use in your stock screener can also be used to help you predict your sell point, so it’s always good to keep that in mind.