Investment Guide: How Stock Screeners Work

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Stock screeners are tools available for traders and investors to filter stocks based on certain parameters. Learn how stock screeners work & how to use it for making right investment desicion.

Stock screeners are tools available for traders and investors to filter stocks based on certain parameters. These may either be free of cost or subscription-based available on various trading platforms and websites.

Such screeners allow you to choose instruments that most appropriately suit your requirements. You may filter stocks on various metrics, such as market capitalization, dividend yield, price, average volume, and several others.

How the stock screeners work

There are hundreds of companies listed on the stock markets. You can use stock screeners to make investment decisions that maximize your profits. Screening is a process whereby you search for companies that meet specified criteria. Most screeners include three components as follows:

• Database of all listed companies
• Certain sets of variables
• Screening engine that filters through the companies to find stocks that meet the set of variables

It is very simple to use stock screeners. You simply need to answer some basic questions, such as:

• Would you like to invest in small or large-cap stocks?
• Do you want to invest in certain industry/ies?
• Are you searching for stocks at their historical highs or companies whose share prices have declined?
• What is the price-earnings (P/E) ratio that is acceptable?

You may use any metric or criterion on the screeners to search for stocks. Most of these focus on factors that affect the share price allowing you to undertake quantitative analysis.

Stock screeners and trading strategies

Stock screeners are useful to develop various trading strategies, which adhere to a certain pre-defined set of rules. Here are a few such strategies:

• Growth investing: With this criterion, you search for companies that are currently expanding their earnings and sales with attractive profits.
• Value investing: Using this approach, you want to identify companies that being neglected and available at lower prices. In the long-term, the stock markets will balance the prices allowing you to earn high profits.
• Quality investing: This is a trading strategy where you identify the best companies with stable metrics like Return on Equity (ROE) that ensures these will continue performing well in the future allowing you to earn good returns.
• Bargain investing: It is a deep value strategy where you try to identify companies of stocks that are not favoured by the markets providing you with the opportunity to earn greater profits.
• Income investing: Using this strategy, you want to identify companies that have a long and stable dividend history. Your focus is on earning regular dividends rather than seeing huge capital appreciation.
• Momentum investing: With this strategy, you buy stocks that have shown winning in the past. Alternatively, you may short sell companies that are historical losers. This strategy primarily relies on the premise that share prices are persistent with their relative historical performance.
• Short selling: This is a risky strategy as you want to identify overvalued companies and earn profits from the continued decline in its stock prices.


Stock screeners are undoubtedly highly beneficial. However, here are three limitations of these screeners:

• Knowing what to screen for

The biggest challenge to maximize the benefits of stock screeners is to know the exact criteria on which to carry out your search. There are hundreds of possible variations with endless combinations. Stock screeners are very versatile but if you do not know what you want to screen for, you will not see much benefit. Some screeners have pre-defined parameters that are beneficial to make investment decisions.

• Lack of information on qualitative factors

A vast majority of the screeners use quantitative factors to search for relevant companies. However, investment decisions must also be based on qualitative factors, such as customer satisfaction levels, pending lawsuits, and labour issues. These qualitative data is not available on stock screeners and doing your independent research is important.

• Timeliness

The stock screeners use various databases that work on different timelines. Therefore, there may be some time lag and it is important you check for the relevance and timeliness of the information before making your decision.

Choosing the right stock screener

There are a large number of trading platforms that offer stock screeners and choosing the right one is difficult. It is recommended you do your research about the different options and compare the features of various screeners. Reading reviews and feedback given by other users will also help. Browsing through the different pre-defined and customizable screening options offered by various screeners is also advisable.

Stock screeners make investing a little easier but do not forget to do your own research. Use the list provided by the screener as the starting point for further research to make informed investment decisions.