What is a Stock Screener & How it Works?

The kind of assets you invest in decides how much of the gains you make from stock market investments. Therefore, the stocks you invest in make a big difference to your overall profits or losses. It should thus be a vital concern of the investors to choose the right stocks while investing in the stock market. Having said this, picking the good stocks from many of them is not an easy task. The massive volume of stocks trading in the share market makes it difficult to choose the right ones. The internet is also full of vast information, making it even more confusing for investors. A Stock screener comes in handy in such a situation.

It isn’t easy to churn out enormous volumes of data related to stocks, be it available on the internet or otherwise. Going through all the data to analyse and then decide on the stocks to invest in. The stock screeners assist investors in sorting out the right stocks according to their needs. So, we must focus on what a stock screener is and understand the meaning of a stock screener. Some of you might have come across the stock screener definition.

Stock screener meaning: a stock screener is a perfect tool to filter out particular stocks. You can get separate stocks based on your requirements.

There are a lot of companies listed on the stock exchanges in India only. One cannot keep a tab on all of them and manually research them. The stock screener tool narrows down the focus of investors to only such stocks that can meet their requirements. Investors can set their parameters and find the best stocks based on them. One can easily find stock screeners on most good trading platforms. Some of these platforms provide the service freely without any charges. Some others charge a specific fee for subscribing to the service. There are several stock screeners in India too. An Indian stock screen is beneficial as it provides more detailed info about the Indian share market. Indian stock screener allows investors to obtain results using various trading instruments also. Some good stock screeners of India are screeners and ticker tape equity screeners. 

Stock screeners are very productive tools for both fundamental traders and technical traders. The investors can filter the stocks based on several criteria as per their own choice. 

These include market capitalisation, price-to-earnings ratio, dividend ratios, average returns in specific years, average volume etc. Some trading platforms also facilitate traders and investors to use technical indicators for getting the results. For example, a user can sort the assets continuously, trading about their hundred-day moving average. 

Another user can use the relative strength index (RSI) to find the stocks trading in a particular range. So, one can find trading opportunities also using stock screeners.

How Does a Stock Screener Work?

The stock screeners work by first making a list of all the stocks trading in the stock market. Then, it starts to separate the stocks from the list as you enter the parameters of your choice. After you complete entering the parameters, the screener will bring out the stocks matching your inputs. The stock screeners consist of three essential parts. The first one is the database of all the stocks. 

The second is the set of parameters to select from. The third is a crucial engine that matches and lists companies with an investor or trader’s parameters. It is not very hard to use a stock screener. You can start by first pondering a few things. These can be any of the following given ones.

1. The stocks that you would like to have in your portfolio. You have to decide whether you like large-cap stocks, mid-cap stocks, or small-cap stocks.

2. See whether you want to invest in the stocks trending at high valuations or the penny stocks. 

3. Look at whether a stock satisfies the key performance indicators like the price to earnings ratio, EBITDA etc.

4.  You may also look at the companies in different sectors which can fulfil your financial targets.

A good one is a stock screener that lets its users find the stocks based on various metrics. However, the stock screeners focus on measurable parameters to give the results to their users. Although the screening takes place on parameters like revenue, volatility, P/E ratio, debt to equity ratio etc., it cannot give the results based on qualitative factors. For instance, one cannot obtain results for the best company in a particular segment. Another thing to note is that the list of companies will become short as you add more and more parameters.

An Example of Stock Screener

Let us take you through an example to get a better understanding of using the stock screener. Before starting, decide the category of parameters you want to use. There are many options based on both fundamental as well as technical analysis. It is essential to have a clear mind about using fundamental or technical parameters. In addition, have your financial aim in mind and plan your moves accordingly. There are different kinds of financial instruments with different characteristics. Look for using the technical parameters if your attention is on short term goals. Shift to fundamental parameters in case you are here aiming for the returns in the long run. 

Now, suppose you want to find the stocks that give high dividends. First, select the market, making India’s trading region if you want to invest in the Indian market. You can use any of your choices, though. Next, select an index id you want to view stocks from particular indices. Then, mention the dividend percentage that you wish to have and, finally, start the search. Usually, the excellent dividend percentage lies between 2%  to 6%. Finally, you will get the list of all the stocks giving dividends on or above the chosen percentage. Choose the company that best suits your needs. 

Usage of the Stock Screeners

The primary purpose of stock screeners is to filter and bring out the stocks according to a set of defined parameters. It reduces the efforts required to find the proper stocks that suit our investment strategies. Filtering the good stocks can be difficult as many stocks are listed on various stock exchanges. A stock screener makes this task easy by considering a user’s preferences. Further, a stock screener is helpful to use power on methodology for determining the worth of stocks. It is helpful for long term investors. Short-term investors such as intraday traders use the tool to identify trading opportunities that can give them good profits.

Advantages of Using a Stock Screener

The following are the advantages of using stock screeners.

1. It saves time by efficiently sorting out the required stocks. You may not need to go through the financial history, performance and other fundamentals of companies every time.

2. The investors have an inbuilt emotional bias for some stocks. Stock market investments made with emotional decisions can be disastrous. Stock screener helps to detach you from this emotional bonding and decide rationally. 

3. Apart from just identifying the stocks for your difference, you can use the stocks screener to spot new avenues of investments.

Limitations of Stock Screeners

Although stock screeners are helpful tools, one needs to be careful of a few things.

1. There are some stock screeners to provide benefits to specific stocks. Make sure that the stock screener you are using is free of such behaviour.

2. investors need to be very careful about their criteria when finding the list of companies to select from. As there are many stocks, one may need more than five parameters to reduce the length of the list.

3. Stock screener can only give results based on quantitative parameters. Investors cannot use qualitative indicators to get a list of stocks.

Conclusion

A Stock screener makes it simple to narrow down the focus area using our choice criteria. It reduces the effort and time both for carrying out research regarding companies. Going through the fundamentals of such a massive number of companies while making investments is nearly impossible. Investors can use the information available from the screeners to make informed decisions. They can decide on these parameters keeping their investment goals and strategies. Yet the investors should not be dependent on the tool. It is always good to use the results with information from other indicators. Use the tool to save time but continue your research. Consider the tool for reducing the companies to research individually.

Frequently Asked Questions (FAQs)