My Stock Screen Routine

Using stock screens effectively requires much more than just plugging in some parameters, casually looking over the results, and picking a stock or two that looks good. To make the most of the screens you have at your disposal, you have to develop a set routine that enables stock screens to become a valuable tool in your approach.

Recently a reader requested that I share my stock screen routine and I'm more than happy to do so. In short, here are the series of steps that I usually take when screening for new opportunities:

1) First, I pick a screen I want to use. On an average day, I run at least two screens (one prior to the open and another at the end of my day. This is also in addition to my normal premarket and intraday screens which I monitor closely during market hours.) On the weekends I have been known to run more than that especially if I'm running behind on my daily workload. Every screen I run is already preplanned for a certain day (more on this later). Over the years I've collected quite a few favorite screens and I'm always working on improving and tweaking the screens I use.

2) Once I run a stock screen and receive the results, I then determine whether I need to fine tune the screen so I have a more manageable research list to work from. My preference is to have between 10 to 25 stocks in the screen's results. Any more than that and the screen becomes too difficult to track, research, and use effectively. So, it isn't unusual for me to tighten the screens parameters a little to narrow down the results.

3) My next task is to identify any stocks on the screen that are coming up in other screens that I run. For any stocks that do, I make a note of it and take a closer look at that stock. Because I incorporate so much screening in my approach, it is very important that the stocks I'm most interested in also are found within a number of screens (both technical and fundamental) I utilize.

4) I then identify any stock on this list that is completely unfamiliar to me either because it isn't on the radar or because other screens have not identified it as an opportunity yet. If the stock isn't found in any of my other screens, I disregard the result and eliminate it from consideration. However, just to be on the careful side, I do dump the stock into a watchlist so if the same stock shows up again in a future screen, I'll start paying attention to it.

5) Depending on the type of screen, I vary the next step. For example, if I'm looking for investments rather than trades, I'll focus my time and energy on looking for stocks that are in underperforming sectors. Likewise, if I'm looking for trades rather than investments, I'm going to really take a very close look at the charts and technical setups in all of the stocks and try to identify the stocks with the best risk/reward setups. Obviously, some screens are more suitable for trading while others are better suited for investing. So I pretty much know what I'm looking for when I choose the screen I want to run. I try to vary the kinds of screens I run in order to collectively understand what the market likes and why. As many of you know, this routinely changes which is why running more than just a few screens is important so you can identify those trends and change your preferences accordingly.

6) With the final results, I then create a tracking portfolio based on the stock screen's results (I generally use end-of-day prices for that day). I also make notes in my database on stocks I think will be the top performers and why as well as stocks I think that will underperform. I review these notes again when I run the same screen at a later time. Doing this is both educational and helpful because it shows me when my analysis has been wrong and when I've been right and why. If you really want to improve your stock selection ability, spending copious amounts of time on this step will help train you to find the best opportunities and avoid the worst.

7) If I've found any new opportunities that I think really deserve my primary attention, I then move those stocks to my watchlist (an average of 100 stocks I like the most) which I monitor throughout the trading day. (Doing so also requires my elimination of a stock from my primary watchlist.) I also set up alerts indicating levels at which I want to buy the stock. I also make sure any intraday screens I use monitor these stocks for price movements that indicate that a good entry can be found.

8) The final step is to set my calendar to pull up this same exact screen in another month (or reasonable period of time depending on the screen and the frequency of the screen's rate of turnover). When I do that, I note any changes to the results, pay close attention to any stocks that remain (the longer the stock is found in the screen the better), new stocks showing up in the screen, and determine if I've made any errors in judgment in my analysis from the last time I ran the screen. Along with other things, I also note the screen's overall effectiveness in comparison to the market's performance.

So, there it is. Yes, it takes tremendous amount of time and effort to utilize screens in this manner, but that's also the only way to make them useful. Like everything else, you get what you put into it.