What is a Stock Scanner? Definition and Meaning
Stock scanners, or stock screeners, are used to filter stocks from a large database. This allows the trader to work with a more manageable list of stocks that better meet the trader’s needs. Once stocks have been scanned, additional analysis can be conducted on the stocks.
Stock scanning tools are designed to make the process of stock selection much easier, and more manageable. By dint of their very nature, stock scanning tools allow traders to save time when sifting through thousands of potential trading opportunities.
These tools facilitate the rational selection of stocks by removing the inherent bias that all traders have. Quality stock scanners are built with powerful computing software, making it easy for instant identification of equities meeting specific criteria.
The challenge for traders is selecting those criteria to input into the search fields. Traders will derive maximum benefit from stock scanners by inputting specific criteria vis-a-vis the stock search. Examples of criteria include portfolio anchors, day gainers, undervalued large caps, stocks by category, insider buying, wedges, et al. Different scanners offer different criteria.
Understanding How a Stock Scanner Works
A stock scanner is designed to ‘scan’ or ‘screen’ thousands of potential stocks for trading purposes. It can be a challenging proposition going through scores of listings of stocks to trade, without an automated process performing screening services for you. Experienced traders routinely use stock scanners to identify lucrative trading opportunities by filtering according to criteria.
As stated earlier, stock traders can filter by volume of shares traded, price of stocks, industry, sector, et al. Given that volatility is a critical component of trading activity, stock scanners can also identify volatile stocks which tend to reflect significant price fluctuations.
As an example of some of the metrics that can be identified by stock scanners, consider the following: stock ratings, stock fair value, a margin of safety, equation screening, historical data, stock charts, ETF screening, average volume, IPO date, expected EPS growth, current daily volume, price, and other metrics.
What Are the Shortfalls of Stock Scanners?
Stock scanners do not provide any meaningful information related to qualitative factors. They do not allow for selection based on customer satisfaction, pending legal action, or labor-related issues. Another major shortfall of stock scanners is the accuracy of data, in terms of timely updates. A stock scanner that does not update pricing in real-time renders itself null and void. Scanners using incomplete databases also fail the litmus test.
Certain indicators are unlikely to reveal stocks meeting specific search fields. For example, price/earnings valuations will not yield favorable search results with stock scanners if the trader is interested in NASDAQ-listed tech stocks. Besides for the usual shortcomings of free software, stock scanners can be riddled with advertisements and distractions.
Stock screeners or stock scanners should not be used in isolation. Traders should err on the side of caution by employing technical and fundamental analysis as part of the stock selection and trading process. There is no substitute for knowledge when trading. Economic news, financial indicators, and a basic understanding of how the trading platform works should be bundled up as part of an overall trading package.
Are Stock Scanners Free?
Stock scanners are routinely offered by trading platforms to entice traders to register with them. The quality of stock scanners varies widely from one provider to the next, so it’s incumbent upon traders to conduct due diligence. Thorough research of the quality of the stock scanner should be undertaken before downloading and installing software or using scanners via a web browser.
Many professional traders use premium stock scanners with an in-depth assessment, selection, and recommendation options. The quality of the stock scanner hinges upon its ability to accurately identify stocks meeting specific criteria, in real-time. If the trading platform updates infrequently, or irregularly, the data derived from the scanner will be suboptimal.
Traders are strongly encouraged to conduct their own research before selecting a stock scanner. A screener can be used as a way of filtering out stocks from the thousands of options available. Stock screeners are helpful in identifying top-performing stocks, and poorly performing stocks. This information can be used for trading purposes, notably going long on top stocks, and going short on the losers.
Interesting related article: “What are Stocks?“