How to Trade Using a Stock Screener in 9 Steps

By January 22, 2019Trader Tips

Do you hear about a stock making a monster move, but you only hear about it after it happened?

Maybe then you look at that big mover and see your favorite chart pattern. You could’ve made a massive profit if only you’d seen the stock before it made its move …

If you’re like most of us, you want to find the best trades quickly. Doing it the old-school way takes forever. It’s a surefire way to miss out on awesome trades.

That’s exactly why you need a stock screener.

Don’t know how to use one? Not for long. This post covers everything you need to know about trading with a stock screener. Let’s do this.

Download the key points of this post as a PDF

How to Trade Stocks

Trading stocks can seem so simple. You just need a brokerage account with some funds in it. Then, when you’re ready, you log into your account and place a trade. Straightforward … right?

There’s a little more to it. We recommend you add a few more steps — and tools — to your process. Here’s what we recommend, at a minimum:

  • A funded brokerage account. This should go without saying, but you need money to make trades and a way to place trades. Make sure that whatever amount of money you put into your account, you’re OK with losing it. Trading can be risky.
  • A good trading platform. Your trading platform should give you access to charting, news feeds, analysis, and so much more. Think of it as your command center for your trading operation.
  • A stock screener. Over 18,000 stocks are traded in the U.S. every day. That’s way too many for one trader to watch. That’s why you need a stock screener, software that can locate the stocks that fit your trading criteria. At StocksToTrade, we built a top-of-the-line stock screener into our platform. Check out a 7-day trial for just $7.
  • A winning strategy. Random trades are rarely winning trades. Don’t just hope to make a profit; that’s not a strategy at all! Instead, be smart and thoughtful about every move you make. You need a strategy for making trading decisions. Find a strategy that works for you and backtest it. Then try to master it.

Ways to Trade Stocks

There’s a vast variety of techniques and strategies you can use to trade stocks, and there are just as many types of traders and investors in the stock market.

That said, if you’re reading our blog, here are three of the major trading styles that will likely interest you:

  • Day trading. This involves opening a trade, then exiting the trade before the market session closes for the day, hopefully for a profit. Day trading is fast paced and can be exciting, but you have to be prepared for the onslaught of price movement, news, and action.
  • Swing trading. With this trading style, you might hold a stock position anywhere from a day to a few weeks. You’re seeking profits on bigger moves than you normally see in a single session. While swing trading isn’t as hectic as day trading, it’s pretty close. Make sure you’re prepared with a well-researched strategy and a robust trading platform.
  • Position trading. Want longer-term trades, maybe weeks, months, or longer? That’s position trading, and it allows you to hold out for major moves. You won’t need to watch the market action on these as closely as day trades or swing trades. But you do need a good trading strategy so that when they do pop up, you’re ready to jump in.

Stock Market Hours

The majority of stock trading in the U.S. happens on two exchanges: the Nasdaq and the New York Stock Exchange (NYSE).

Both exchanges operate Monday to Friday year-round (except U.S. holidays) with regular daily trading sessions between 9:30 a.m. and 4 p.m. The daily session is where most traders focus. That’s where you find most of the volume.

Outside of these hours, you can still place trades in pre-market and after-hours sessions. Trading in these sessions can give you the opportunity to act in the event that a stock’s price will likely move the next day, due to the evening news, for example.

But be warned! Trading outside of regular market hours can be tricky. There’s generally far less liquidity. That means it’s harder to get a trade filled without knocking the price around. Make sure you know what you’re doing before you venture into the after-hours arena.

How to Trade Using a Stock Screener in 9 Steps

A stock screener takes a lot of the legwork out of finding the best stocks to trade. Screeners scan scores of stocks, almost instantly, looking for the exact criteria that you set.

We’ve compiled these nine easy-to-follow steps to teach you the ins and outs about how to invest your money or trade using a stock screener. Let’s dive in!

#1 Follow Chart Patterns

Think of patterns in a stock chart like footprints, with other traders leaving the tracks. Big picture: You’re looking at the movements of the market herd. And once you really understand what you’re looking at, the patterns can give you an indication of what the herd will do next.

It’s all about anticipation. When you can anticipate what happens next, you learn where the odds are stacked in your favor. As result, you can start thinking about your trades in a more dynamic way. No more lunging in the dark, hoping for the best.

Knowing chart patterns can also help you determine appropriate stop-loss and take-profit levels.

Successful traders use chart patterns to trade all kinds of markets profitably. We recommend that you make chart analysis a major part of your trading strategy.

Examples of Key Chart Patterns

To further understand chart patterns and how to use them, here are two examples of patterns that are regularly found in many stocks.

Breakout Pattern

breakout pattern on stock chart

(KALY:OCTMKTS) (Source: StocksToTrade)

A breakout pattern involves a stock breaking above a key price level.

The above chart shows KALY, a penny stock traded on the OTC markets, form a resistance level of around 0.0085 in November 2018.

In mid-December 2018, the stock breaks out above this level on increased volume, before making a run of several hundred percent.

Traders who bought this breakout could have multiplied the capital they invested, assuming they were nimble in exiting the trade.

Breakout and Retest

stock chart breakout and retest

(CWCO:NASDAQ) (Source: StocksToTrade)

In a breakout and retest pattern, stocks that break above or below a key level often come back to the breakout point before continuing their move.

This chart shows CWCO, a Nasdaq-traded stock, establish a support level of around $13.25 in August 2018.

In September 2018, CWCO broke below support before returning to the level in November 2018. The previous support level acted as resistance, and the stock continued its move to the downside.

Traders who missed entering a trade on the initial break of the support level could’ve still profited from the down move by short-selling when CWCO retested the level.

Only Trade Patterns That You Master

Do a quick Google search on charting and you’ll find a slew of information on how to invest money or trade using chart patterns. You’ll find that there are literally thousands of recorded chart patterns.

All these patterns can be completely overwhelming. Many newbies will learn the basics of a few patterns … then they place bad trades. They haven’t fully learned what makes a great chart setup and what doesn’t.

That’s why we advise that if you’re new to trading, pick one or two chart patterns. Get real cozy with them. Then backtest them and try to master the intricacies of the patterns.

You want to live and breathe your patterns, know them like the back of your hand. Also, keep previous examples of these patterns. In short, make them your best friend. That’s how many traders develop the confidence and expertise to kill it in the markets.

#2 Follow Technical Indicators

After the chart analysis is done, it’s time for technical indicators. It’s common for traders to overlay technical indicators on a chart as a way to filter trades for a higher probability.

Technical indicators take raw price and volume data from the chart and manipulate it in ways to show you things like recent momentum, trend strength, or volatility. All of these things can help you make better trades.

Sound complicated? Don’t worry, indicators are pretty simple to use once you get the hang of them.

Examples of Technical Indicators

To help you wrap your head around what technical indicators look like and how to use them, here are two recent examples of potential technical indicator setups:

Moving Averages

moving average crossover on stock chart

(AMZN:NASDAQ) (Source: StocksToTrade)

Moving averages show the average price of a stock over a selected time period, for example, 20, 50, or 200 days.

There are many ways that traders can use moving averages to get an indication of a stock’s future direction. For example, they can use the crossover of a faster-moving average compared to a slower-moving average to indicate a change in direction.

Above we can see a chart of Amazon that shows two moving averages, the 50-day, and the 20-day.

In October 2018, the 20-day moving average crosses below the 50-day moving average for the first time in months.

Traders who used this as a short-selling signal could have participated in a move that saw AMZN decline over 30% from its high.

MACD Indicator

MACD divergence on Netflix chart

(NFLX:NASDAQ) (Source: StocksToTrade)

The MACD indicator shows the relationship between two moving averages, normally the 26 and 12 exponential moving averages (EMAs). Traders can use this indicator to alert them to potential changes in trend.

Take a look at the Netflix chart: The stock is stair-stepping downward in price. At the same time, the MACD indicator is stair-stepping upward. This setup is often called a MACD divergence.

Traders who used this setup to get long NFLX could’ve participated in a rapid up move that saw NFLX gain over $100 per share.

#3 Trade Stocks With High Volume

When you’re looking for a trade or what to invest your money in, a common trap is falling for low-volume stocks. The trade looks great, but the stock just doesn’t have enough trading volume.

Having enough trading volume means that there are always enough buyers and sellers active in the market, ready to take the other side of your order. This means that you can easily get in or get out without pushing the price around too much.

We recommend that you filter for stocks that have at least $1 million in daily trading volume. If you trade a large account, you’ll probably require even more volume than that.

Examples of High Volume Stocks

Here are two quick examples of stocks with high trading volume. Make sure to check out the comments on the charts to learn more about examining trading volume.

shares traded on a bar graph

(TWTR:NASDAQ) shows consistently high trading volume of around 40 million shares per day. (Source: StocksToTrade)

saex stock chart

(SAEX:NASDAQ) shows a recent surge in trading volume from a previous quiet period. (Source:StocksToTrade)

#4 Trade Based on News Catalysts

Imagine buying a stock as the market opens, only for the price to rocket up into a big profit. Sounds great, doesn’t it?

This is why many traders love trading stocks that look like they’re ready to move in an instant. A great way to find these ready-to-move stocks is by trading off news catalysts.

News catalysts are anything that can affect the price of the stock. It can be a news story, a company announcement, an SEC filing, or even Twitter gossip.

You probably already have your favorite stocks. We recommend you stay up to date on those stocks with news catalysts both before and after trading sessions. They can lead you right to the action, but you’ve gotta see them before you can act on them.

#5 Don’t Trust Stock Promoters

Stock promoters are people or companies hired to help raise public awareness of a stock. That awareness can result in rapid price movement and often allows company insiders to liquidate shares at a higher price. It can also be a way for the company to raise funds at an artificial price.

Promoters have bags and bags of tricks. Sometimes they run newspaper ads or press releases. They might pay to run a news story. They’ll even do massive email blasts, raving about the next ‘exciting’ stock.

Most promoters are involved in the smaller end of the market, mainly penny stocks. What they do isn’t really illegal, but it’s usually shady.

No matter how hot a stock seems, no matter how good the story, never trust stock promoters. Do your due diligence. Look at the charts. Check out the stock’s price action. Look to get in and out: The excited masses can push the stock price up before its ultimate collapse.

#6 Cut Your Losses Quickly With Stop Losses

No trader profits on 100% of their trades. Some successful traders can lose on half or more of their trades but still make huge profits every year. Sound confusing?

There’s a simple reason for this: Trading is mostly about losing a little when you’re wrong and (hopefully) taking a big profit when you’re right.

To do that, traders use stop losses. These are predetermined price points where you’ll exit the trade if it’s going against you.

For example, say you buy a stock for $1.50 and place a stop loss at $1.40. If the stock declines to $1.40, that’s your cue to protect your capital and get out!

We recommend that you always plan your stop loss, often based on a key chart pattern level. Use them wisely and they can help keep your trades in fighting form.

#7 Keep a Trading Journal and a Stock Watchlist

We love these two simple-but-massively-powerful tools: trading journals and stock watchlists. Let’s take a quick look at how to properly use them.

A Trading Journal

A trading journal allows you to record everything regarding your trades, including your mindset for the day and what you’re thinking about the markets.

But it’s not enough to just record this information. You have to then analyze it and use it to help you refine your trading strategy and ability.

Some examples of what you can track in your trading journal:

  • The exact history of your trades: your entry, you exit, where you placed your stop loss, the trade duration, the order type.
  • Your analysis and thoughts on market conditions at the time. Was the sector hot? Was the overall market up or down?
  • Your emotional state while in the trade. Were you stressed to be in a short trade while the market was up? Were you relaxed and confident?
  • General market or trading strategy observations to explore at a later time.

Why collect this information? So you can go back and see where you’ve done well and which areas need improvement. Better trading is all about doing more of what works and less of what doesn’t.

Stock Watchlists

A stock watchlist is a place for you to track stocks that you think show potential. You can also use watchlists to keep tabs on different market sectors.

Many traders keep separate watchlists for the different sectors — for example, one for pot stocks, one for biotech, and another for crypto stocks.

Once you have your watchlist, it’s time for research. Hone in on these stocks to be more prepared when the market opens.

We recommend you have at least one watchlist with your favorite stocks in it. And if you need an easy way to track your watchlists, check out the StocksToTrade platform. Its built-in, streamlined unlimited watchlist features help you stay on top of stock action.

Our StocksToTrade members can attest to the power of a great scanner. Get a 7-day, $7 StocksToTrade trial now and see what all the buzz is about!

#8 Don’t Trade Too Big

Here’s a key major rule in trading: Never bet the farm. Never risk it all on one trade.

Some newbie traders start out by putting all of their capital into one or two stocks. And if those trades turn south, it can mean losing a big chunk of capital.

Before you start trading with real money, you need to learn to manage risk. Start small — only risk a small fraction of your capital on any one trade, maybe 1% or 2%.

Let’s look at how that plays out in terms of real money. Say a trader with a $20,000 account buys $2,000 worth of a stock. This trader also sets their stop-loss to close out the trade if the stock price declines by 10%. This means a risk of $200, or 1% of the account.

You have to manage your risk. No matter how confident you are in a trade, it can always be a loser.

Never let one loss do major damage to your capital!

#9 Use the Best Stock Screener

There are over 18,000 stocks traded in the U.S. each trading day. You have to find a way to filter through all of them to find the best opportunities.

A stock screener can help you quickly build a list of stocks that look like good investments or trades.

With a good stock screener, you input the exact trading criteria that you’re looking for, like chart patterns or a combination of technical indicators. Once you set your markers, the screener quickly scans and returns a list of potential trading candidates.

Don’t overlook this tool. Stock screeners are useful time-savers, doing the bulk of the research for you. We’ve spent countless hours perfecting our stock screener on the StocksToTrade platform.

The StocksToTrade screener is easy to use, with a drag-and-drop interface. You simply click a few buttons to set your scanning criteria … no programming skills required.

We’re confident we built the best stock screener on the market. Grab a trial of StocksToTrade for only $7 and see why many traders won’t start the day without it.

Take Advantage of All the StocksToTrade Features

If you’re heading into battle, you want the most powerful weapons at your disposal, right?

Consider thinking of going into the markets as going into battle. That’s the exact mentality we had when building the StocksToTrade platform. We’re real-world traders, so we built the absolute dream platform for high-performing, real-world traders. It’s your powerful weapon to help you slay in the markets.

Here are just a few of the great features you’ll find on our platform:

  • Highly customizable charting features to give you a clean, elegant view of market action.
  • A massive and growing library of technical indicators.
  • Real-time scanning abilities to track market hype — news stories, SEC filings, Twitter, and more.
  • The ability to view nearly every stock traded in the U.S., including pink sheets and OTC markets.
  • And many more premium features to help make your trading day effortless and easy.

It’s no mistake that legions of traders start their day with the StocksToTrade platform. If you aren’t with us yet, get a 7-day trial for just $7 and find out what you’re missing.

Conclusion

We hope you’re now ready to put your stock screener to use. Once you experience the massive benefits firsthand, you’ll never stop using one.

But remember that to find success with your screener, you also need a winning strategy. That means having a process to find great trades, like using your favorite chart patterns combined with news catalysts.

It’s totally OK to take baby steps. Keep your screening criteria simple, then revamp your process and add more criteria as you gain experience.

Make sure you record everything you do in your trading journal, including trial-and-error results from the screening process. Track every move you make, then go back and analyze what worked and what didn’t.

Now it’s time to get to work on your first screening session. If you don’t have a stock screener ready to go, try a 7-day trial of StocksToTrade for $7.

What criteria do you scan for in stocks? What are your top tips? We’d love to hear what you have to say. Share your comments below!

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