While riskier than classic stocks, penny stocks can offer explosive growth in a short period of time if they are in a trendy industry.
Once you’re well educated on how penny stocks trading works and you’ve created a trading plan, the hardest part of penny stock trading is to select the right companies that will provide the best returns – especially as there are so many companies to analyze. Stock screeners to the rescue!
A stock screener is a tool that helps traders and investors scan and screen a list of stocks based on pre-selected criteria. Therefore, a stock screener acts as a filter to quickly analyze thousands of stocks to highlight the ones that suit your trading. By narrowing your choices, a stock scanner helps you save time by focusing on a list of stocks that already meet your criteria.
So, how should you choose and set up your stock screener?
The most important thing is to determine your trading style and strategy, as well as your financial goals beforehand, so you have criteria to base your analysis on. Here a few questions that will help you in your reflection process:
- Are you an active trader?
- Do you day trade penny stocks?
- Do you plan on investing in penny stocks over the long-run?
- Do you rely more on technical or fundamental analysis to make your trading decisions?
- What are you looking for in penny stocks trading/investing?
Depending on your strategy and goals, you can adopt different approaches to use stock screeners and get the best results. If you like to trade strong price movements, you could turn to breakouts and take advantage of the moment when a stock price accelerates while exiting a charting pattern like a rectangle, a triangle, a wedge, etc. There are many other chart patterns you could follow, like a breakout and a retest of a key level, or you could also use technical indicators setups to enter and exit the markets, like with the RSI or Moving Averages. You can also use fundamental metrics to set up your stock screener. You can filter companies by industry, by sector, by country, by currency, by trading volume, by sales, by P/E ratio, by revenue, by debt, etc.
If used properly, stock screeners can be an extremely powerful tool that will help you save time by narrowing down your penny stock watch list. To spot the best opportunities for you, you should always take into account your trading strategy and financial goals. Before investing in a company highlighted by a stock screener, remember to always do your own research, as a stock scanner should be considered as a tool that helps you narrow down the stocks you’ll investigate further, rather than a tool that selects stocks you should invest blindly in.