Stock Market Scanning Software
Picking stocks that fit your trading criteria can be a tedious task. With potentially tens of thousands of stocks to scan, manual searching becomes virtually impossible. Stock market scanning software speeds up the process through computer assisted automation.
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Types
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Stock market scanning software comes in two broad types, fundamental and technical. Fundamental scanning will select stocks based on financial data such as earnings, debt and institutional support. Technical scans are based on price and volume of the share price. The former does a scan based on accounting ledgers and the latter screens based on price and volume charts.
Time Frame
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There are a wide range of historical time frames to use with your stock market scanning software. Investors who buy and hold stocks for extended periods of time will gravitate toward scanning years of historical data. Technical traders, such as swing traders and intra-day traders, are often interested in data that spans minutes, hours or days.
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Considerations
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When contemplating a purchase of stock market scanning software, the following considerations are important: the markets the software able to scan; whether the scans predetermined or customizable; cost; screening criteria; large customer base and technical support; and variety of time frames utilized.
Misconceptions
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Some traders feel that having automated software will instantly increase profitability. This is a common misconception. Computer programs can only speed up a process that you already know. For instance, if you like to buy stocks with a low price-to-earnings ratio, the software should be able to generate such a list quickly. It cannot, however, foretell the future beyond the ability of the trader. Another incorrect assumption is that the scanning software is always infallible. If the numbers fed to the program are faulty, the results will likewise be erroneous. Always double-check your data for events such as large dividend payouts, stock splits or buyouts.
Effects
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Automated screening programs have effected the stock market as a whole. Momentum buyers are able to quickly find stocks making large movements. Stocks with strong momentum often experience radical price movements as traders quickly locate these stocks with scanner software. Another effect is that individual traders can spend more time analyzing a small basket of stocks caught in the software's scanning filter instead of trying to pour over thousands of potential candidates.
Warning
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An investor should never trade a stock found in a predetermined scan unless he understands the investing principles behind the screening rules. For instance, a trader might want to buy and sell volatile stocks over a very short period of time. However the scanning filter might only bring up large capitalization stocks with stable price movements. Traders should not simply buy or sell stocks based on a scanning setup that they do not comprehend.
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References
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