Technical Stock Screener

Investment analysis involves a mix of technical and fundamental analysis. A fundamental evaluation assesses a company’s worth, financial position, and earnings capacity. If the predicted stock price exceeds the current market value, it presents an investment opportunity. 

Conversely, technical analysis uses mathematical calculations to predict stock price movement in the near or short-term future. It uses variables such as trading volume, stock price and frequency of price change to identify trends and predict price movements. A technical stock screener is a tool that filters stocks based on price-dependent indicators.

Traders use technical indicator screeners to identify potential trading opportunities. It is especially useful for short-term and medium-term strategies. 

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 enable investors to sort through a comprehensive list of financial parameters based on the user’s criteria. It involves the following steps.

a.    Users select specific investment parameters based on their requirements. For instance, a trader focused on technical analysis will evaluate variables such as moving averages, chart patterns, average direction index, momentum levels and chart patterns. Contrarily, a fundamental investor will prefer to analyse the price-earning (PE) ratio, market capitalisation, earning per share, return on investment, dividend yield, and operating cash flow. 

b.    A live technical analysis charts screener aims to narrow the list of prospective securities to invest in. Thus, the more criteria a user inputs, the more comprehensive the list of securities to invest in. 

c.    Every investor can use a technical stock screener to evaluate the information available before investment. 


What are the Types of Technical Indicators? 

Technical indicators are of two types – leading and lagging. Leading indicators provide trade signals before a trend starts. It aims to predict the price in the short term and lead the price movement. Lagging indicators follow the price movement and provide signals after a trend or reversal starts. 

Below is a list of technical indicators, simple and complex, used actively by traders and investors.

A.    Moving Averages

The moving market price average is a widely used and relatively straightforward technical indicator. It provides insights into the stock price trend. If the moving average increases over time, it indicates an uptrend. Similarly, if it consistently reduces over time, it indicates a downtrend. 

Comparing the short-term moving average with the long-term average is useful for identifying a trend.  For example, if a thirty-day moving average is more than a ninety-day moving average, it indicates an uptrend. The stock price has been increasing faster in the current days as compared to the past few months. The moving average is a lagging technical indicator. 

B.    Moving Average Convergence-Divergence

The Moving Average Convergence-Divergence (MACD) is a slightly complex momentum indicator. It is a lagging indicator that shows changes in a stock price trend's duration, strength and momentum. 

The MACD calculates the correlation between a short-term and medium-term moving average. Investors use MACD to ascertain if a stock’s momentum is increasing or reducing upward or downward.

While the MACD has various elements, the histogram is of utmost importance. A clear and rising histogram indicates a positive momentum. It signifies an increase in bullish momentum. If it is falling or negative, it indicates a bearish outlook. A negative but rising or positive but falling histogram indicates a reversal trend. 

C.    Relative Strength Index

One of the most used momentum indicators is the relative strength index (RSI). RSI measures the stock’s recent trading strength, trend change and scale of the move. It is a leading indicator and relatively straightforward to understand. 

If the RSI exceeds 70, it indicates excessive purchasing and overvaluation. Similarly, if the RSI is below 30, it indicates overselling of the stock. However, the thumb rule is subject to exception. The RSI may be temporarily over 70 or below 30 if a stock displays a strong trend. Therefore, looking for stocks within these RSI bands can provide trading opportunities with increased momentum.

D.    Volume-Weighted Average Price

The volume-weighted average price (VWAP) indicates a bullish or bearish movement in an intraday timescale. Day traders commonly use VWAP to identify trading opportunities. If the VWAP exceeds the stock price, it indicates a price fall. Similarly, if the VWAP is lower than the price, it’s a buy signal. For example, if the VWAP exceeds the parameter price, it is a good intraday buy.

E.    Bollinger Bands

Bollinger Bands are lagging indicators that estimate a price’s ‘lowness’ or ‘highness’ based on previous trades. Bollinger bands use the standard deviation of the price to identify a range around the moving stock price average. It signifies volatility and the bands broaden when the volatility is high. With low volatility, they are narrow around the current price.

Traders use Bollinger bands to analyse volatility and instance of overselling or overbuying. Thus, when a stock is close to or touches its lower Bollinger Band, it indicates excessive selling. Contrarily, there is excessive buying if a stock breaches its upper Bollinger Band. A stock with a market price less than its lower Bollinger Band is a potential opportunity to buy.

F.    Standard Deviation

Traders use this technical indicator extensively. The standard deviation represents the expected investment risk. It is a measure of market volatility and measures dispersion from the average price. 

If the prices move in a narrow trading range, the standard deviation is and signifies less volatility. If the price movement oscillates up and down rapidly, it indicates high volatility. 

G.    Volume Rate of Change

The volume rate of change is a lagging indicator and focuses on increased volumes on market tops, breakouts and bottoms. Volume Rate of Change is a volume change over a period divided by the volume in a previous period. It confirms a trading direction and measures the strength of a trend. It uses raw volume to predict price movements and trends. Typically, increased volumes result in strong trends. 

H.    Average True Range

The Average True Range (ATR) is a lagging indicator indicating the price volatility degree. It is a factor of the 14-day simple moving average. It uses a series of true range indicators to identify a range of price swings over a specified period. 

ATR does not frequently trigger investment signals, but it is a useful indicator of 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.

A live technical analysis chart screener effectively identifies trading opportunities and discovers profitable potential without any time lag. Technical stock screeners are dynamic and customisable. It allows you to develop complex and targeted scenarios using various technical indicators. 

One is spoilt for choice with a technical stock screener. Therefore, it could make your screens complex. The basics, such as trading volumes and price, are essential for every technical stock screen.

Frequently Asked Questions

What is the most widely used technical stock screener? 

The Moving Average Convergence and Divergence (MACD) and Relative Strength Index (RSI) are the two most widely used technical stock screeners. 

Which technical indicator is bullish? 

Bollinger bands are the most effective and bullish technical indicator that helps spot breakouts in a trend. It is particularly useful in a sideways trend when all other indicators fail. 

Which technical indicator screener is best for entry and exit? 

MACD helps identify entry and exit. A buy signal occurs if the MACD lines crossover below the neutral line. Similarly, a sell signal emerges if the crossover is above the neutral line.

What is the most accurate technical indicator screener in trading? 

There are a variety of technical indicators. However, MACD is the most accurate technical indicator since it signals trends and momentum. 

How many technical indicators should I use? 

Two or three indicators are sufficient for technical analysis. However, using more than three indicators is not advisable.