How To Effectively Use A Stock Screener

how to use a stock screenerStock screeners are very important for us stock traders. Although they have so much importance for our daily stocks’ research, many of us don’t really know how to effectively utilize them.

Do you use a stock screener?

You’ll be surprised to see how many stock traders who don’t use a stock screener to help pick the right stocks.

Many of them just choose not to use one while many others just don’t have any idea how to use one.

Before we dive into our topic, why don’t we put a definition on it?

What’s a stock screener?

It’s a research tool that is made to enable stock traders to look for stocks that match their preference.

You’re able to look for stocks that meet your criteria from a pool of so many stocks. As you’re choosing what you want in term of criteria the number of the stocks is decreasing.

Once you’ve set all your criteria you can check out the ones that look more attractive to you.

Robert Farrington from College Investor states that “I am a huge value investor, and look for solid companies that can be purchased at a discounted price (maybe due to bad short-term news). The trick to finding these companies is to use a stock screener“.

According to him, that tells you that a stock screener can be very helpful to you in term of penny stock trading. It’s one of the few markets that relies heavily on news.

Since a stock screener can help you to spot those stocks with current and fresh news, why not add it to your research tools’ list?

How do you use a stock screener?

If you did not know, setting up the criteria is not something difficult. I like Finviz, which is a free stock screener.

They’re many other free stock screeners out there that are very good. But I just like Finviz for its features and its look.

Keep in mind most of the stock brokers have a stock screener within their platform. This is something to take advantage of since you’re paying for it.

For example if you were using Finviz for your search, you would choose your preferences from the table’s cells that you want.

You can leave some of them empty, you don’t necessarily have to select something from each one of them.

After you have completed this step you should see the total number of the stocks decreases. It narrows your search according to what you have selected.

From this smaller pool of stocks you can start looking, you can click on any stock’s tiker or symbol to see its candle stick as well as the company’s important information.

You’re not done yet!

Many stock traders make this very mistake. I don’t want you to commit this same mistake as them.

What is it exactly?

Many of them tend to pick one stock that looks really attractive from the list given by the screener and start trading it right off the bat.

A stock screener should not be your only mean of research. It should be one of the tools that you use to conduct your research, but by no mean it should be your only tool.

It’s not difficult to make this mistake since stock screeners have so many information about the stocks; nonetheless, you have to fully research your stocks before you put your money in them.

What’s next after the stock screener?

Now that you’ve picked your stock if you’re going to invest in one. Look deeper, try to find what exactly this company is about.

What are the products that are being sold by this company? This is important that you try to know this fact because some products don’t really do well depending on the season.

In other words, some products are seasonal ones. They might do great in summer, but in winter it’s a totally different outcome.

Don’t overlook this particular information. You’ll find it very crucial to your decision making.

Then move on to the financial situation of the company. Do a little research to find whether or not this company is in debt. This happened to me before, so I’m just talking from my experience.

You don’t want to invest into a company that’s in debt and at risk of going bankrupt. Although I did not lose much, I did lose from a company that disappear just a couple of days after some pumps.

Had I done my research, and look for every thing that I’m sharing with you right now, I would not have lost my money. But like they say “Anything happens for reason,” I guess it was a way for me to learn from my mistake, which I totally did.

If the company is new it would be most likely to be in debt, but you should be able to decide whether or not you should invest in it. If the debt is too high or low enough is something you’ll have to decide on.

If there’s no debt, that’s a very good sign.

Now look for the company’s cash flow. What’s a cash flow?

The Financial Dictionary by Farlex gives a nice definition to cash flow. It could not has been defined any better than this.

Cash that comes into or goes out of a person’s or company’s account. Cash flow can come from any number of sources and is crucial for a business’ continued operation and a person’s continued survival. Cash inflow may come from wages, salary, sales, loans, revenue from operations, or even personal gifts. Cash outflow usually comes from expenses and investments. It is crucially important to maintain a positive net cash flow insofar as possible.

As you can see, there’s cash inflow and cash outflow. The important aspect of them is to have a positive net cash flow. If the net cash flow is negative, then something must be going wrong within this company.

So make sure that you’re not investing into a company with a negative net cash flow.

Lastly do a comparison with its competitors. For example, if you have to buy shares from either one of the two most known rideshare companies, talking about Uber and Lyft. 

Uber would have been the winner because it’s the number one rideshare company according to riders reviews. So, by comparing you can see which one has the most potential to make profits, which is what you’re looking for.

To conclude, buying shares from stocks require a good amount of research. A stock screener is always a way to start your research.

However, don’t limit your research to only a stock screener because there are many things about a company you’ll need to know which you may not find from a screener.

Conduct your research thoroughly to be certain that you’re investing your hard earned money into a company that worth it.