Stock screening – how to do it right

The stock verification process can be broken down into clear and effective stages that will quickly lead you to new trading and investment opportunities. Here’s how it works:

First, you need to capture all the relevant data in the stock screening software. If you’re a fundamental guy, obviously you’ll need the last 5 years of annual financial reporting as well as the last quarterly. If you are a price-oriented trader, you are probably interested in price models, candlesticks or researching technical indicators on more short-term data. Therefore, you need to select the data set to which the filtering rule will be applied.

Second, you need to develop filtering rules that you want to use in your stock validation tools. If you’re a fundamental investor, your rule might look something like this: tell me about all the stocks on the Toronto Stock Exchange that have a market capitalization of less than $ 100 million, debt-to-equity ratios of less than 2, and average quarterly cash flow growth over recent 3 quarters at least 10%. This screen will select stocks with a small capitalization with low leverage and increased cash flow – a good indicator of financial health. If you are a technical trader, your rule may be this: tell me all stocks on the Toronto Stock Exchange with a closing price of less than 50 and more than 5, with an RSI of more than 50, a moving average for a period of 50 and a 3-day period. rollback in price. This screen will select all stocks that are on an uptrend, with relatively strong internal strength, but which had a short-term rollback, which may be an opportunity to buy.

Third, you should be able to detail and further analyze stocks that have discovered an app to test stocks across the entire stock universe. As a fundamental investor, you want instant access to other financial data for each stock selected on the screen. As a technical trader, you want to see price and volume on a time series chart, possibly with a few extra indicator overlays.

Once you have conducted further detailing and analysis, you can select stocks to trade or invest. This process should be carried out constantly to make sure you are always considering the best options available that fit your method or strategy. In a nutshell, here’s how you properly do stock screening.