Technical Stock Screener

What is a Technical Stock Screener?

A technical indicator screener is an online tool that enables investors to filter through a collection of available stocks or exchange-traded funds (ETFs) based on the investor’s criteria. Investors can use a distinctive methodology to spot short- and long-term trading opportunities.

Screeners narrow down investment opportunities based on user inputs and send alerts if the parameters are met. Therefore, it highlights buying and selling opportunities to the investor.

A stock screener for technical analysis is useful for professionals and individuals, fundamental and technical traders. Generally, it is available on brokerage sites free of charge. It may also be available on some subscription websites. 

How Do Technical Indicators Screener Work?

Technical stock screeners allow investors to filter securities based on specific criteria. Traders focused on technical analysis use parameters like moving averages and momentum levels, while fundamental investors consider metrics like: 

1.    PE ratio and 
2.    ROI etc.

These screeners help narrow down investment options by applying user-defined criteria, making them valuable for evaluating potential investments before making decisions. The more criteria inputted, the more targeted the investment list becomes, aiding both technical and fundamental investors in identifying suitable opportunities efficiently.

What are the Types of Technical Indicators? 

Technical indicators are categorized into leading and lagging types. Leading indicators predict price movements before trends start, while lagging indicators follow price movements and confirm trends.

A. Moving Averages: This simple indicator identifies trends by averaging market prices over time. A rising average suggests an uptrend, while a falling average indicates a downtrend.

B. Moving Average Convergence-Divergence (MACD): A lagging momentum indicator that compares short-term and medium-term averages to assess trend strength. A rising histogram indicates positive momentum, while a falling one suggests a bearish trend.

C. Relative Strength Index (RSI): A leading indicator measuring recent price strength. RSI above 70 signals overbought conditions, while below 30 indicates oversold conditions.

D. Volume-Weighted Average Price (VWAP): An intraday indicator used by day traders. If the VWAP is higher than the stock price, it suggests a price fall, and vice versa.

E. Bollinger Bands: These lagging indicators measure price volatility using standard deviation. Prices near the lower band indicate overselling, while those near the upper band suggest overbuying.

F. Standard Deviation: This measures market volatility. A narrow range indicates low volatility, while rapid price oscillations suggest high volatility.

G. Volume Rate of Change: A lagging indicator that analyzes volume trends to confirm trading directions and measure trend strength. Increased volume often signals strong trends.

H. Average True Range (ATR): A lagging indicator that measures price volatility over a period, helping to identify breakout points.

What are the Examples of Technical Stock Screeners? 

A technical stock screener is very detailed for fundamental and technical analysis. Consider your priorities and types of financial instruments and choose a technical or fundamental approach for analysis. 

For short-term analysis, multiple technical tools such as RSI, momentum studies, charting and alerts are available. You can even set alerts for a particular stock or ETF when it crosses a price level or if RSI hits. For long-term investors, there is fundamental data like daily volume, EPS, market capitalisation, etc. 

You can build a targeted stock screen as follows – 

A.    Bullish Momentum - Use moving averages to identify strong upward trends and MACD to identify stocks with momentum. Limit the RSI to less than 70 so only stocks with the potential for increased returns are available.

B.    Oversold Stocks - Deploy RSI and Bollinger Bands to identify oversold stocks. Set a filter for RSI below 30, and the market prices breach the lower Bollinger Bands in the past trading day.

C.    Death Cross - ‘Death Cross’ is when the 50-day moving average is below the 200-day moving average.

D. Volume-Weighted Average Price (VWAP) - An intraday indicator used by day traders. If the VWAP is higher than the stock price, it suggests a price fall, and vice versa.

E. Bollinger Bands - These lagging indicators measure price volatility using standard deviation. Prices near the lower band indicate overselling, while those near the upper band suggest overbuying.

F. Standard Deviation -  This measures market volatility. A narrow range indicates low volatility, while rapid price oscillations suggest high volatility.

G. Volume Rate of Change - A lagging indicator that analyzes volume trends to confirm trading directions and measure trend strength. Increased volume often signals strong trends.

H. Average True Range (ATR) -  A lagging indicator that measures price volatility over a period, helping to identify breakout points.

What are the Examples of Technical Stock Screeners? 

Technical stock screeners cater to both fundamental and technical analysis. They offer tools like RSI, momentum studies, and alerts for short-term analysis, and fundamental data such as EPS and market capitalization for long-term investors.

You can build a targeted stock screen as follows – 

1. Bullish Momentum: Use moving averages and MACD to find stocks with upward trends, keeping RSI below 70 for potential returns.

2. Oversold Stocks: Utilize RSI and Bollinger Bands, setting RSI below 30 and identifying stocks breaching lower Bollinger Bands recently.

3. Death Cross: Identify when the 50-day moving average is below the 200-day average.

•    Intraday Trading Example:

1. Use 5paisa's "Intraday Momentum" screener.
2. Set MACD bullish crossover, VROC higher than the previous day, and RSI between 30-70.

•    Swing Trading Example:

1. Use "Swing Trade Opportunities."
2. Set Bollinger Bands breakout, RSI below 30, and ATR for volatility.

Monitor and automate alerts for updates.

Advantages of Using Technical Stock Screeners

Technical stock screeners offer traders and investors a way to sift through vast amounts of market data efficiently. 
They provide an edge by allowing users to filter stocks based on specific criteria such as price movements, volume, technical indicators, and patterns. 

The ability to customize these filters based on trading strategies enhances precision. 
This efficiency saves time, reduces the manual effort required for stock selection, and increases the chances of identifying potential trading opportunities, leading to more informed decisions.

Limitations of Technical Stock Screeners

While technical stock screeners are useful tools, they have certain limitations. 

One of the main drawbacks is their reliance on historical data, which may not always predict future market conditions. 
False signals, or “whipsaws,” can also occur, especially in volatile markets. 

Moreover, they tend to overlook broader market context and external factors such as news events or macroeconomic changes. 

A technical screener should be used as part of a broader investment strategy, ideally complemented by fundamental analysis and market sentiment checks.

How to Choose the Right Technical Stock Screener?

Choosing the right technical stock screener depends on your trading goals, preferred analysis style, and the market conditions you're operating in. Key factors to consider include the screener’s ease of use, available technical indicators, customization options, and back testing features. For instance, day traders may need a tool with real-time data and high-frequency filters, while long-term investors might focus on broader trend indicators. Always ensure the screener aligns with your strategy, whether it's short-term momentum, swing trading, or position trading.

Integrating Technical and Fundamental Analysis

Integrating technical and fundamental analysis can provide a more balanced approach to stock evaluation. While technical analysis focuses on price patterns, trends, and volumes, fundamental analysis evaluates the company’s financial health, growth prospects, and market position. Combining these can offer deeper insights. For example, using a technical indicator like moving averages to time an entry point while simultaneously assessing a company’s earnings growth or debt-to-equity ratio can help traders make more informed decisions with higher accuracy.

Customizing Technical Stock Screeners

Customizing a technical stock screener allows traders to filter stocks based on their personal trading style and preferences. This can include setting specific criteria such as relative strength index (RSI), moving average convergence divergence (MACD), or Bollinger Bands. Customization can also involve adjusting the time frame, trading volume, or price ranges. Tailoring the screener based on these factors allows users to focus on stocks that fit their strategy, whether they are targeting breakout opportunities, trend reversals, or stocks showing consistent momentum.

Real-World Applications of Technical Stock Screeners

Technical stock screeners are used in various real-world scenarios to identify trading opportunities. 
For instance, a swing trader might use a screener to filter stocks with bullish chart patterns or oversold conditions, followed by technical indicators like RSI to confirm momentum. 

Day traders could focus on stocks with high volatility or large trading volumes. 
In the context of market crashes or recessions, screeners can be used to identify stocks that are oversold or showing signs of recovery, helping traders seize opportunities during market downturns.

Common Mistakes When Using Technical Stock Screeners

There are several common mistakes that traders make when using technical stock screeners. 
One error is ignoring broader market context, such as economic news or geopolitical events, which can drastically affect stock prices. Another mistake is over-customizing the screener, leading to too narrow of a focus and missing out on potential opportunities. 

Additionally, many traders fail to backtest their strategies, relying on live data without testing how their filters would have performed historically. 

Finally, it's important not to rely solely on technical analysis without considering other relevant factors like market trends or company fundamentals.

Conclusion

Live technical chart screeners are dynamic and customizable, helping identify trading opportunities in real-time. They use key indicators like trading volume and price, enabling users to create complex, targeted scenarios. Despite the variety of options, focusing on basic indicators is crucial for effective analysis and profitable potential without time lag.