Whether you are a committed day trader, a part-time speculator or an amateur investor you could do worse than invest in a stock scanner.
But what exactly are stock scanners and how can they help investors of all types?
In this post, we’re looking at the newest addition to the investment tech stack and identifying the ways that they can help you identify your next purchase.
What is a stock scanner?
A stock scanner is an app that allows you to check markets in real-time and identifies potential targets that may be of interest.
Some scanners will specialise in only one or two exchanges, others will look at many different markets to find potential targets.
The users set a series of parameters(called filters) based on their particular trading strategies.
The scanner will then match these against a market or in some cases a series of markets and highlight stocks that fit the bill.
Some stock scanners work through a browser although these tend to be a little slower and aren’t always suitable for very active day traders.
The quickest types of scanners are installed on local machines and require a very fast internet connection and a very capable computer to make the best use of them.
All stock scanners are different of course and in general terms, you get what you pay for but that doesn’t mean you should discount basic versions as many have some really useful features that can help massively.
So how can they help the trader?
Removing stock that you’re not interested in
For many years now airline pilots have known about the effects of information overload.
So much information is received, in such a short amount of time that the brain is simply unable to process all the inputs.
This leads to poor decision making and could end up being very serious indeed.
When you are looking for stocks to buy, it’s easy to find yourself in the same position as you scour the stock exchanges trying to work out what is happening.
For the trader, bad decision making means money and if you are hoping to trade rapidly across a series of markets then managing to make your way through the jungle of information is incredibly difficult.
This is where stock scanners really come into their own, helping traders ignore stocks that don’t fit into their particular strategy.
Identifying stocks that you are interested in
The other side of ignoring stocks that you aren’t interested in is finding stocks that you do want to buy.
For active day traders time is money, and so having a super quick alert of a stock that falls squarely in your area of interest is invaluable.
A stock scanner will instantly identify stocks the moment they fall within your filters meaning that you are getting the information the moment it becomes relevant.
Bear in mind that time in this instance is money. Day traders make a profit from volatility so getting the information about stock movements quickly is imperative.
Identifying a time to sell
Making money isn’t all about making a profit, it’s also about knowing when to get out of a position.
Stock scanners can also be used to alert holders to the point where their work with a particular stock is done.
Crystallising your profit is a matter of timing, wait too long and you will see your profit disappear into thin air. This is why a real-time view of what is happening is so important.
Organising your portfolio
If you hold a large number of positions then you may well find that things get out of hand very quickly indeed.
Good scanners will connect with your broker and give you an overview of your current position and their value.
Even for the amateur, a stock scanner can be very useful simply as a holding place for information about their own portfolio and often fairly low-level scanners that can do this will be cheap or even free.
Testing stock strategies
If you believe what you see in the media then stock trading is a matter of just playing the markets based on hunches and intuition.
It’s unsurprising that the reality is somewhat different and you’ll find that really good stock traders are successful because actually, they put in the hard yards.
People who consistently do well on the markets spend a lot of time researching stocks and developing their strategies.
A good stock scanner will have the facility to set up dummy strategies and play them as though they were real.
This means that you can test out your thought process and see in real-time exactly how they play out but without risking any real cash.
It’s likely that your first attempts will fail (and sometimes badly) but as your knowledge and skill develop you will adjust and amend your key strategies to find your winning formula.
Levelling the playing field
In the past, only the big institutions had access to good stock scanners.
This meant that if you worked for a big finance house or stockbroker you had an inbuilt advantage over smaller day traders or amateur investors because you got access to the information first.
Today, with so many good scanners on the market, anyone can use a system that lets them compete with the professionals on a level playing field.
In a competitive marketplace, being able to operate just like the big boys means that you can make money based on your own efforts and skill despite the fact that they may have the backing of a big institution.
Wrapping up – Stock scanners make sense at all levels
Whatever type of trader you are, you’ll find something of value in a stock scanner.
You may just want a free version to organise and keep an eye on your current portfolio.
You may want to test out some strategies in dummy accounts just to make sure that your theories are correct.
Or you may be a full-on day trader who needs the ability to identify target stocks within a matter of milliseconds so that you can close a position ultra-rapidly.
Whatever you need a stock scanner for there’s definitely an option available that fits your needs and price range.
Check out a few stock scanners today and see how they can revolutionise your trading.
