What are Stock Scanners and Why You Should Use Them for Trading and Investing

by Josh Biggs in Software on 29th March 2021

Finding trade opportunities can be monotonous and boring — there’s nothing sexy about it.

However, with a reliable stock scanner, what takes traders hours to accomplish previously can now be accomplished in minutes and with less effort. 

A stock scanner can do the heavy lifting by streamlining your process of watching tons of stocks and viewing charts, allowing you to find the hottest action in the market more efficiently. You can also add it to your arsenal of tools as a stock market expert

In this guide, we’ll cover the nuts and bolts of stock scanners and why you should leverage them to supercharge your trading and investing efforts. 

What is a stock scanner?

Stock scanners are screening tools that search markets to discover stocks that meet a set of user-defined metrics and criteria for investing and trading. 

You can modify stock scanners to detect the best fitting candidates that meet your set filters. 

A stock scanner can go through tons of stocks almost instantly to find the best matches to your exact criteria. This streamlines the time-consuming and energy-draining task of finding new trading opportunities, making the process more efficient. 

You can learn how to use a technical stock scanner to find stocks that make all-time-highs on significantly high trading volumes. You can also get any other information you need and get every stock that meets your defined criteria quickly.  

Without a stock scanner, you’d have to manually go through endless streams of charts and potentially miss out on top trading opportunities based on your criteria.  

While a stock scanner is sometimes used interchangeably with a stock screener, the two have several specific differences.  

Stock screeners were developed when the internet was still new. Screeners were essentially websites where you would log in at night and scan the market for basic criteria such as stocks that went beyond the moving average. 

Generally, modern screeners tend to be low tech and light on your resources. They’re excellent tools for investors because they provide targets to find based on a specific set of attributes. 

Stock scanners can draw in real-time data that show stock movements based on user-defined criteria. The tool is better suited to active day traders since it can provide instant access to quality data.  

Main stock scanner types

There are several types of stock scanners, but the two main types are data scanners and news scanners. 

Data scanners

A data scanner uses criteria that you define or pre-set. 

Your criteria can be based on technicals that refer to stock price action such as double bottom, highest relative volume, and new highs. 

It could also be based on fundamentals that refer to business financial metrics, including cash-per-share, Price-to-Earnings (P/E) ratio, and Price-to-Sales (P/S) ratio.  

Data scanners are the most commonly used scanning tools, with most traders tending to use prebuilt scans. 

These can be delayed scanners that use the end of day data to find potential swing trade opportunities or real-time scanners that look for intraday trading opportunities. 

You can build a data scan with almost any data point, but you need to set it up properly to get your desired information and, ultimately, uncover profitable trading opportunities.

News Scanners 

A news scanner monitors multiple news feeds and streams news alerts to help you gather data on keywords you provide or gain information on specific companies.

For instance, if a company releases an article, filing, press release, or new partnerships, news scanners will alert you. 

News you find relevant can cause the stock to experience above-average volume, in which case, the stock might then hit the data scanners. 

The objective of using news scanners is to gain a first-mover advantage to track down vital news items that can move a stock (or stocks). 

The real-time element of news scanners can help you determine momentum before the stock hits data scanners. 

You can also use news scanners to explain the potential factors that drive an underlying stock’s powerful price move. 

Benefits of using stock scanners

Below are some of the advantages of leveraging stock scanners for trading and investing. 

Easy to use

Handling stock market data can get uber-complex, but a reliable stock scanner can offer an easy-to-use interface. 

While various scanner tools offer unique and distinct features, you can find one that offers a user-friendly interface. This allows you to roll out your scans quickly without needing to deal with a high learning curve. 

A simple to operate stock scanner can help streamline your scanning, allowing you to focus on other critical aspects of your trading and investing strategies while cutting down on the time and effort you need to spend. 

Create custom scans

The scanner can only be as good as your scan, making it crucial to build custom scans that align with and support your trading and investing strategies. 

Robust stock scanner tools allow you to create your custom scans based on user-defined criteria, and you can tailor the scan results to address your specific needs. 

Some of the unique scan ideas you can build using custom criteria include:

  • Profitable companies that trade close to their 52-week lows
  • Stocks that have a daily volume of more than double the seven-day average trading volume
  • Stocks that are under $10 with a P/E of under 20 trading two percent below their 200-day moving average

Custom scans give you more flexibility, allowing you to uncover countless potential trading opportunities.

Leverage built-in scans

Several stock scanner tools provide built-in scans with predefined criteria. These are useful if you’re new to trading and not that confident to create your custom scan. If you’re an experienced trader, you can also use built-in scans to save time and effort. 

Some of the common built-in scans include stocks hitting new highs or new lows, stocks breaking out on volume, and stocks crossing moving averages.  

Advanced scan criteria

Your scanning criteria work as filters to help you create and run effective scans. 

With a powerful stock scanner, you can input your criteria, and the tool will automatically and swiftly generate the best matching results, doing most of the heavy lifting for you. 

Besides access to essential filters, some stock scanning software will also offer more unique criteria. 

For instance, top stock scanners will provide essential criteria for volume and price, but advanced scanning tools can offer more unique metrics, including revenue, Earnings per Share (EPS), and advanced technical indicators. 

Final thoughts

Stock scanners are powerful tools that should be in your arsenal if you want to get more out of your trading and investing efforts. 

With the right scanning tool that meets your needs, you can find the exact trading criteria you want and zoom in on profitable stocks, increasing your chances of finding excellent trading and investing opportunities.   

Categories: Software