The most oversold stocks today is a list of stocks that have been beaten down recently and have the potential to bounce back. The oversold stocks list is useful for swing traders and day traders who are looking for quick trades. This list is not for long-term investors who are looking to buy and hold stocks for the long term.
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What are oversold stocks?
First, let's define what oversold stock means. Oversold stocks have different meanings depending on whether you are a trader or an investor.
For a long-term investor, a stock is considered oversold when it is trading under the true value based on fundamental data such as the P/E ratio. If a stock's P/E ratio is at a historical low, it will be considered cheap to long-term value investors.
For technical traders, the perspective of oversold stocks is different than the measurements of the P/E ratios of a company. As short-term traders, we determine whether a stock is oversold based on the RSI indicator or the stochastic oscillator to see if a stock is too cheap compared to recent prices.
The technical approach does not take into account the P/E ratios or any fundamental data, the main focus is the stock price and the stock charts.
There are many technical indicators developed by traders to measure if a stock is oversold. The Relative Strength Index indicator (RSI) and stochastic oscillator are the most popular indicators when it comes to finding oversold and overbought stocks.
When the RSI indicator drops below 30, the stock is considered oversold or when the stochastic oscillator drops below 20, it is also considered oversold. Often, these two technical indicators generate conflicting signals.
How to find oversold stocks?
Our stock screener is for technical traders as most of the tools are built based on technical analysis and chart patterns. Therefore, we will only be discussing how to find oversold stocks based on the technical indicators.
The oversold stocks listed above are based on the RSI indicator. If you prefer to use the stochastic indicator, simply follow the below steps.
- Go to our main page https://stock-screener.org
- Scroll down to find the stochastic indicator under the Technical Stock Screener
- Select the stochastic crossover from 0 & to 30.
- Hit the submit button, and you will get a list of stocks that are oversold based on the stochastic indicator.
How to trade oversold stocks?
As technical traders, we should never rely on a single indicator. We should use multiple technical indicators and chart patterns to generate a buy and sell signal. It is recommended that a trader combines the RSI or the stochastic with other indicators for best results.
Let's take a look at a chart example.
The oversold stock signal based on the RSI indicator works out well for the stock COUP. During mid-March, the stock formed three bullish signals.
- RSI drops below 30 and bounces back above the RSI oversold a few days later
- MACD made a crossover which is another bullish sign
- On top of that, the stock is trading at a usually high volume on the day that it bounced back from the bottom.
Oversold stocks examples
Let's look at another example, CPNG, which was another oversold stock recently.
- The RSI indicator for CPNG dived below 30 twice in the following chart. First in January, and a second time in Mid-May. In both cases, the stock was considered an oversold stock.
- As the RSI crosses over 30 from the oversold zone, it generates a bullish signal.
- Around the same time, the stock chart forms a MACD crossover which is another bullish signal.
- In January after the RSI rises above 30, CPNG rises from about $20 per share and peaks at $27 a month later.
- The stock then keeps going lower until Mid-May when the stock is considered oversold again based on the RSI indicator. The stock then plunged sharply on May 9 and May 11 to a low of $9 per share. After the RSI crossover of 30 again the next day after the stock rises, the stock then peaks around $14. For the next 3 weeks or so, the stock is consolidating in that area and fails to break above $14 which means $14 is the new resistance. Since the stock could go either way from here, there is no advantage of holding the stock any longer for traders who go long based on the RSI crossover signal.
I wish to tell you that every trade works out as well as the ones that we showed above, but that's not the case. Oftentimes, a stock fails to go up and you need to get out at a loss or break even. You need to have a plan before you enter a trade and have an exit strategy to get out when things are not working out.
Please understand that just because a stock is oversold based on the technical indicator doesn't mean it has reached the bottom.
Many factors may cause the downtrend, such as the general market is in negative territory, the economy being in trouble, the industry is not doing good, or the stock itself may be in trouble.
During a downtrend, stock can be in oversold territory for a very long time. A trader has to be careful not to jump in on trade too early otherwise he will end up losing money.
Buying a stock during a downtrend is like catching a falling knife, the odds are against you. Conservative traders should wait for signs of recovery and set a tight stop loss to buy oversold stocks.
To learn more, read the following related articles
How to trade oversold stocks
When to sell a stock
How to read stock charts
Oversold Penny Stocks
This list does not include penny stocks. For those who are interested in oversold penny stocks, use the penny stocks scanner.
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