We rarely stop to think about it, but one of the primary responsibilities of a trader is to filter out noise. We have to filter out irrelevant stocks, commentary, news, and other distractions. Thousands of stocks are traded daily but only a few are viable trading candidates. Our job is to identify these trading opportunities at the right times. Get this process right and you have yourself a trade setup. Get it wrong and you end up wasting your time staring at stagnant stocks.
So, how can traders filter out the noise and identify the hottest trading opportunities?
We can use stock market scanners.
What is a Stock Market Scanner?
A stock market scanner (sometimes referred to as a screener) is used to filter stocks based on a variety of criteria. This criteria may consist of both fundamental and technical data points that can be used to help you identify the stocks that are most relevant to your trading strategy. For example, if you only trade stocks under $10, you can add that criteria to your scanner and filter out all stocks that are trading above $10. The more criteria you add, the more noise you filter.
In the technological age of trading, scanners are no longer optional. I’d argue that they’re one of the most essential trading tools for active traders. While investors may rely on fundamental research, traders are generally guided by data. Since there are thousands of stocks traded every day, it would be impossible to sort through all of this data manually. A scanner helps you identify the most promising trading opportunities every single day.
While the objective of all scanners is universal (find hot stocks), there are a few distinctions you should be aware of. Not all scanners are created equal. You’ll want to select a scanner that is ideal for your personal trading strategy.
Let’s explore some of the key differentiators.
Real-time Scanners vs. Screeners
There are two types of scans. While there are no official classifications for these scanners, they’re best defined by how they return results. A real-time scanner is constantly running, whereas a screener is a one-off scan. The terms “scanner” and “screener” are often used interchangeably, but for our purposes we’ll refer to scanners as real-time streaming tools and screeners as one-off scans.
Real-time scanners are ideal for day traders who need to be aware of intraday momentum. These scans use real-time data and deliver a constant stream of results. For example, if you created a scan for stocks trading above their 50-day moving averages, a real-time scanner would return results whenever this criteria was met. If a stock was trading below it’s moving average at market open and crossed above the average intraday, the trader would receive an alert. Real-time scanners are essential for day traders because the real-time component ensures traders don’t miss out on intraday moves.
Screeners are ideal for longer term traders who have no interest in intraday price fluctuations. Screeners are great for creating watch lists and doing stock research. These scanners use similar criteria as real-time scanners but they generally don’t run in real-time. For example, you may use a simple screener to find high volume stocks to add to your watch list for the next day.
Types of Scanners
There are two key types of scanners: news scanners and data scanners.
News scanners are real-time scanners that stream news alerts throughout the day. If a company releases a press release, article, or filing, the news scanner will provide an alert to the trader. These scanners are ideal for traders who incorporate news into their strategies. The real-time component of these scanners can help traders identify momentum before the stock starts hitting the data scanners. For example, if a company announces an exciting new partnerships, it will hit the news wires first. If traders find the news to be relevant, the stock may experience above average volume, at which point, the stock may hit the data scanners.
Certain news scanners, like Benzinga Pro, will also add an audio stream for traders who want news updates throughout the day.
Some news scanners, like EquityFeed, will also allow traders to add data variables to the scan. In this case, traders can scan for news using technical criteria (i.e. stock price, volume, etc.)
Data scanners are probably the most popular type of scanner. When you hear the word “scanner” it generally refers to a data scanner. Data scanners scan the market using technical and fundamental criteria.
Common technical criteria include:
- Stock price
- Stock volume
- New highs
- New lows
- Technical indicators
Common fundamental criteria include:
- P/E Ratios
You can create data scans using almost any data point you can think of. Regardless of which scanning tool you use, a lot of the power of a scanner comes from the setup. A scanner isn’t a magical tool that delivers profitable trading opportunities. The scanner is only as good as the scan itself, and getting your scans right will take time.
How to Choose a Stock Scanner
There are a lot of different stock market scanners available. The best way to choose a stock scanner is to focus on your needs. As mentioned above, a scanner is simply a tool to help you find stocks to trade. You are still responsible for setting up your scans and aligning them with your personal trading strategy. That said, here are some things to consider.
Some scanners will offer built-in scans using predefined criteria. These scans can be helpful for new traders who are not comfortable creating their own scans. They can also be convenient for experienced traders who want to save time.
These scans may include:
- Stocks hitting new highs
- Stocks hitting new lows
- Stocks breaking out on volume
- Stocks crossing moving averages
Custom scans are scans created with user-defined criteria. These are the scans you can use to tailor your scan results to your specific needs. Custom scans provide more flexibility for traders. Whereas built-in scans provided limited options, custom scans offer infinite possibilities.
Here are some unique scan ideas that you can create using custom criteria:
- Stocks under $10 with a P/E under 20 trading 2% below their 200-day moving average
- Stocks with daily volume that is more than double the 7-day average trading volume
- Profitable companies trading close to their 52-week lows
Scanning criteria serve as the filters used to create effective scans. Traders can input their criteria and the scanning tool will output matching results. Effective filters are at the heart of every scan.
While most scanning software will provide access to the essential criteria/filters, some scanners will provide even more unique criteria. For example, most quality scanners will include criteria for price and volume. Some advanced scanners will have more unique metrics like EPS, Revenue, and advanced technical indicators.
While most conventional scanners rely on common market data like price and volume, some companies have developed proprietary scanning criteria. These criteria are exclusive to the companies who create the metrics. For example, IBD’s Marketsmith tool can scan for stocks using CANSLIM ratings and Zacks Premium can scan for stocks using Zacks Rank.
Scanners have improved a lot over the years. As more and more features are added, many scanners can actually serve as standalone trading platforms. These platforms may include charts, news, and even level 2. Some platforms will take things a step further by offering broker integration. At this point, the scanner can replace your entire trading platform. This is particularly beneficial for traders who don’t already have access to a quality trading platform.
Scanners can exist as web applications or desktop software. There are benefits to both. Web applications are convenient and require less computer resources. Desktop platforms are usually more advanced, but they can also hog your computer’s resources. You also want to make sure your desktop platforms are compatible with your operating system. While most scanners work on Windows PC’s, only a select few work on Mac computers.
Here are a few popular web scanners:
Here are a few popular desktop scanners:
Ease of Use
Dealing with market data can get complicated, so it’s important that your scanner has a user-friendly interface. If the platform is too difficult to use, it won’t be beneficial to your trading.
Like any software, a scanner needs to be reliable. Software bugs can cause the scanner to crash, which could be detrimental to your trading. Many early-stage scanners still have a lot of bugs, so you’re better off choosing a scanner from an established company.
Our Top Picks for Scanners
We’ve tested over a dozen of the top scanners on the market using the criteria above for our assessments. Here are our top recommendations:
Trade Ideas is one of the newer scanners on the market, but the platform has quickly become one of the most popular scanners on the market. Trade Ideas offers some of the most innovative tools in the scanning industry. Trade Ideas offers built-in scans and customizable scans, both of which are ideal for intraday traders.
They recently announced the launch of broker integration which allows traders to build scans and auto-trade via broker integration.
EquityFeed is one of the best established scanning tools on the market. The company has been around for over 10 years and continues to release innovative new features. EquityFeed has by far the best customizable data scanner. You can choose from over 100 different filters to create unique, real-time scans. As an added bonus, EquityFeed also offers one of the best news scanners in the game.
Benzinga Pro is our top news scanner by a longshot. The web-based platform is well-designed, easy-to-use, and effective. Benzinga Pro also offers an audio squawk for live market commentary. While the primary feature of the platform is news streaming, Benzinga Pro also offers a range of other beneficial features, such as data screeners, company data, and earnings calendars.
A paid service is recommended for active traders, but you can get started with a free scanner.
FinViz is by far the best free scanner we’ve tested. You can create custom scans using a variety of technical and fundamental criteria. Scan results can be displayed in text lists or technical charts. FinViz also offers access to a lot of relevant market data, such as a stock’s revenue, float, P/E ratio, and much more.
Which Scanners Do You Like Best?
What are your go-to scanners? We want to hear from you!
Leave a comment to discuss your favorite scanner or scan settings. If there’s a scanner you want us to review, feel free to contact us.