Stock Screener Guide: build high-signal screens
A stock screener is only useful if it produces a repeatable shortlist. This guide explains a practical framework for screening and the most common mistakes to avoid.
Quick takeaway: Start with liquidity and quality constraints, then add the thesis filters (value, growth, momentum). Finish with a risk sanity-check.
1) Start with liquidity & tradability
- Average volume filter to reduce slippage.
- Price floors to avoid microstructure noise.
- Market cap constraints for your style (small/mid/large).
2) Choose a thesis: value, growth, quality, momentum (or blend)
Value screens
- Lower P/E or EV/EBITDA within a sector peer set.
- Positive cash generation (avoid “cheap for a reason”).
Growth screens
- Revenue/earnings growth, improving margins, durable demand.
- Prefer consistency (multi-period) over one-off spikes.
Quality screens
- Return on capital measures (when available), healthy leverage, stable cash flows.
- Avoid high leverage + cyclicality unless that’s the explicit strategy.
Momentum & trend screens
- Use trend confirmation (e.g., price above moving averages) to avoid value traps.
- Confirm with liquidity and volatility constraints.
3) Add risk constraints to prevent “beautiful disasters”
- Max drawdown / volatility limits (risk parity style constraints if applicable).
- Sector concentration controls for the final shortlist.
- Event risk awareness (earnings, macro releases) depending on horizon.
4) Common screener mistakes
- Over-optimizing filters until you get a “perfect” historical list.
- Ignoring survivorship bias when evaluating outcomes.
- Mixing horizons (long-term fundamentals with very short-term signals) without a plan.
- Skipping liquidity and then blaming the market for slippage.
5) Example: a simple, scalable screen
Example idea: “Liquid large caps with reasonable valuation and strong volume.”
pe < 20 and avg_volume_3m > 1m and market cap > 2b