How Stock Scanners Opened Up the Stock Market to a New Generation of Traders
Stock scanners have revolutionised the way traders search for stocks and find profitable trading opportunities. Here, we discuss how they work and their key benefits.
If you ask any professional day trader what the most challenging part of their job is, the vast majority of them will tell you it’s finding good stocks to trade. After all, there are approximately 630,000 companies that are traded publicly throughout the world – that’s a lot of data to sift through.
Incredibly, the New York Stock Exchange (NYSE) alone has over 2,400 companies that combine for $21.3 trillion in market capitalisation, which means that traders are spoiled for choice when it comes to trading opportunities. However, unless you are superhuman, that’s simply too much data to analyse effectively on your own.
What is a stock scanner?
Before the internet came along, the only way you could gather information on stocks was through reading financial publications and dealing with your broker directly. This usually meant taking a trip down to their office or calling them over the phone to discuss investment options.
If you wanted to place a trade, you had to talk to them and permit them to place one for you.
This meant that day trading was only possible for those who worked on Wall Street and could execute trades in a timely fashion using real-time data. The average Joe sitting at home stood no chance, as the tools they had at their disposal were rather rudimentary, to say the least.
Before the internet came along, the only way you could gather information on stocks was through reading financial publications and dealing with your broker directly.
Nowadays, practically every home in the US has an active internet connection, and with the use of stock scanners, the hardest part of trading has been well and truly eliminated. Instead of calling up your broker to discuss only a handful of different stocks, you can now use a stock scanner to examine the entire market in a matter of seconds to find the stocks that perfectly fit your predetermined set of criteria. And the best part of all, you can now place the trades yourself from the comfort of your own home.
As a trader, this limits your exposure strictly to the stocks that fall within your trading parameters, effectively canceling out the unnecessary noise of the market and minimizing distractions.
How do stock scanners work?
So, how do they work? Well, stock scanners have access to a large database of company information, such as their price, industry, the volume traded, and price-to-earnings ratio (P/E).
All you have to do is tell the software the set of variables that you wish to include or exclude, and then the screening engine will scour the market and find companies that satisfy that criteria. You will then be presented with a list of matches in an easy-to-digest format that you can go on to analyze in greater detail.
Benefits of stock scanners
Still on the fence over whether or not you need to add a stock scanner to your trading arsenal? Here are a few of their key benefits:
First and foremost, stock scanners save you a tonne of time when searching for new trading opportunities. Rather than relying on manually researching the market, you can instantly view all of the stocks that perfectly match your trading strategy.
First and foremost, stock scanners save you a tonne of time when searching for new trading opportunities.
This allows you to spend more time actually trading stocks rather than searching for them, and hopefully, it should give you a great opportunity to increase your bottom line and bring home more profit.
Reduce the likelihood of emotionally based decisions
Emotional trading is the nemesis of every trader. Rather than relying on their well-thought-out strategy and logical reasoning, traders sometimes let their personal feelings and emotions get in the way and impact their decision-making. This lack of emotional control can spell disaster for your trading balance and make the difference between being a winner trading or a losing one.
So, how can stock scanners help? Well, because you can enter your exact criteria into the scanner, it eliminates the possibility of incorrectly selecting stocks that do not fit your strategy. Additionally, it removes bias and the potential for illogical decision-making, as you will only ever be presented with stocks that are ripe for trading.
Spot new opportunities you would have otherwise missed
Finally, stock scanners present you with new trading opportunities that you would otherwise have missed. As we stated earlier, it would take a superhuman effort to scan all of the stocks thoroughly each day.
Because of this, people generally tend to stick to a handful of stocks that they know and trade them when they enter into their trading zones. If this sounds like you, unfortunately, it means you’re missing out on thousands of other stocks that might offer more profitable trading opportunities than the ones you keep an eye on manually.
Stock scanners give you the ability to enter into trades on lesser-known stocks that may have the potential to grow but are overlooked by the vast majority of traders due to their obscurity.
As a trader, more knowledge is never a bad thing, so get on board and take your trading decisions to the next level.