How to use Stock Screeners for Stock Market Success

There are many different ways to attempt to make money in the stock market, but broadly speaking what you are generally doing is looking for stocks that fit certain criteria that you believe make them better moneymakers than the alternatives.

You’re faced then with two questions: What criteria should you use? and How do you ascertain what stocks fit those criteria?

As to the first, should you be looking at “fundamental” factors having to do with the value of the stock’s underlying company, including the state of the economy, the state of the industry this company is in, and the state of this company itself? Should you be looking at “technical” factors of the trading of this stock, such as volume, where it is in relation to its yearly high and low, whether it has gone up x days in a row or gone down y days in a row, etc.? Or perhaps some combination of both?

People have been struggling with predicting stock movement like that since the advent of the stock market, and no doubt will continue to do so for as long as there is a stock market. Some skeptics will say that little if any progress has been made in establishing what criteria to use to pick winners (heck, some skeptics contend that no progress ever can be made on that score, that ultimately – in the absence of things like insider information – all attempts to pick stocks are random “dartboard” events), while some believe they’ve identified factors that are consistently correlated with stock movement that will make them money.

But what’s undeniable is the progress that’s been made on the second matter, that of then ascertaining which stocks fit your chosen criteria. This progress comes in the form of what’s called a “stock screener.”

Gone are the days when one had to painstakingly pore over charts and written materials from companies, taking notes with paper and pencil to find those rare stocks, those rare situations, that fit your chosen criteria.

Rather like a search engine, a stock screener is a program that allows you to enter the criteria that you’re interested in, and then search its database of stocks to find any matches.

So perhaps you think the best stocks to buy are hospital stocks that are listed on the S&P 500, have share prices between $10 and $50, have P/E ratios of 30 or greater, have a dividend yield of 3 percent or more, and are at least 10 percent below their high for the year. You would enter these factors into the program, and it would tell you which, if any, stocks fit these criteria.

There are an enormous number of stock screener software programs available in stores and online. Depending on the degree of sophistication, how many factors are taken into account, how many ranges there are within these factors, etc., they can be free, part of a modest subscription to an investor site, or quite expensive. It’s worthwhile to start with a free one to get a feel for how they work, and then to decide if you need something more powerful. Google, for example, has a free stock screener here.

There are also stock screeners that don’t require you to enter the criteria, but instead use predetermined criteria chosen by “experts.” Much like using a system designed by Bill James to project baseball statistics for your fantasy league, with these you need not  figure out yourself what data to use and how.

If you’re interested in buying and selling stock, it’s worth familiarizing yourself with stock screeners. They are a tool that greatly reduces the time you would otherwise have to devote to accomplishing certain research tasks.