In addition to the futures markets (such as the Nasdaq futures), and the currency markets (such as the EUR to USD), there are thousands of stocks available to day traders. However, many of the stock markets are not suitable for day trading, so how does a day trader choose a stock that is tradeable? The answer is, by using a market scanner (also known as a stock scanner).
What are Market Scanners
Market scanners are used to search through the stock markets looking for stocks that match specific criteria. For example, you could use a market scanner to list all of the US stocks that had a price of less than $100, and a volume over 100,000 shares. The criteria that are used are provided by the trader, so market scanners can be used to find stock markets that suit different trading personalities and styles.
Market scanners are usually included with brokerage provided trading software (such as Interactive Brokers' Trader Workstation), but they are also available as independent software (such as Trade Ideas). Market scanners also vary in ability, with the basic scanners being able to search by standard criteria such as volume, price, and daily range, and advanced scanners being able to include additional criteria such as chart patterns (e.g. double tops, etc.).
How are Market Scanners Used?
Market scanners support many different criteria, which can be used individually, or can be combined into more complicated strategies. Beginning day traders may only use a couple of criteria, while an experienced day trader might use several criteria, and require that the criteria interact with each other in a specific way.
The market scanner settings are used to determine which stock markets to include in the search, and are as follows:
- Type of Market - Decides which stocks will be included in the search, and usually includes US stocks, European stocks, and Asian stocks.
- Exchanges - Include or exclude specific exchanges, such as including Nasdaq stocks, but excluding NYSE stocks.
- Filters - Filter the results of the search based upon basic information, such as the price being above or below a particular price, and the volume being above or below a particular level.
The actual market scanner criteria which the included stocks are checked against are as follows:
- Greatest Increase by Percentage - Includes the stocks that have increased the most as a percentage of their price.
- Greatest Decrease by Percentage - Includes the stocks that have decreased the most as a percentage of their price.
- Most Active by Volume - Includes the stocks that are experiencing the highest volume.
- Most Active by Trades - Includes the stocks that are experiencing the highest number of trades.
- Largest Price Range - Includes the stocks that have the highest volatility (price range between high and low).
- Chart Patterns - Includes the stocks that are making specific chart patterns, such as triple tops or five consecutive lower lows (the chart patterns criteria is only available with the most advanced market scanners).
When to Use a Market Scanner
Market scanners are used to find stock markets that meet the criteria required for your trading system. For example, if your trading system takes trades half way through a significant price move, and has a target of 25 ticks, you could use a market scanner to find stock markets that have daily ranges of at least 50 ticks. Once you have found a trading system that is profitable for you, you can use a market scanner to find additional markets that might be compatible and therefore also profitable with the same trading system.