I mentioned a little about my stock scanning the other day. I just happened to come across an article by Alan Farley about his process of scanning for stocks. (You’ll need to save that article locally b/c that page changes every so often.) He also uses TC2000 and you’ll see a lot of similarities in what we do. The one major difference is that once I do my filtering, which gets me to my ‘universe of tradeable stocks’ I apply scans to that list instead of just sorting as Alan does. I scan for certain candlestick patterns, volume surges, new highs today, new highs within the last 10 days, I sort by %b and look for stocks near a Bollinger Band, etc.

Farley makes some excellent points in that article, namely:

Don’t be restrictive in setting up scan criteria, because today’s cold stocks could become tomorrow’s hot plays. The best scanning language combines the most potent elements of fundamental and technical analysis. For example, filtering stocks with disparate elements such as earnings growth and moving averages can uncover excellent trades with a few clicks in seconds

Full-time traders should prepare a range of scans that target particular plays or patterns. For example, having an updated momentum list ready to go when speculation hits the markets can mean the difference between profit and loss. Alternatively, stocks that wobble back and forth between well-defined price levels make great trading vehicles in quiet times.

Your scanning routine needs to identify setups, measure reward/risk ratios and find the most advantageous execution prices. Build an automatic filtering process that evaluates each stock objectively for these three characteristics. Remember that a single flaw that doesn’t fit your trading style may negate an otherwise perfect opportunity.

Understand the real purpose of market scanning. Traders spend long hours trying to build scans that spit out perfect gems and no losers. This strange obsession actually undermines their considerable efforts. Scans are wake-up calls for your watch list — nothing more and nothing less….

For more on screening, Andy Dunn has some great info about free, online tools on his site and in his book. Gary B. Smith also has a lot on scanning in his TheStreet.com archives.