How to Find Oversold Stocks on Finviz

What is an Oversold Stock?

Before diving into the details of how to find oversold stocks on Finviz, it’s important to understand what “oversold” means. A stock is considered oversold when it has experienced a rapid and steep decline in price, often triggered by excessive selling pressure. This can happen due to various factors, including negative news, poor earnings reports, or broader market sell-offs.

When a stock is oversold, it may trade at a price lower than its intrinsic value, presenting a potential buying opportunity for investors who believe the stock will rebound. However, not all oversold stocks recover quickly, so careful analysis is essential before making any investment decisions.

How to Use Finviz to Identify Oversold Stocks

Finviz offers an advanced stock screener that allows users to filter stocks based on several technical indicators. One of the most common indicators used to identify oversold stocks is the Relative Strength Index (RSI). RSI is a momentum oscillator that measures the speed and change of price movements. It ranges from 0 to 100, and a stock is generally considered oversold when its RSI falls below 30.

Here’s how you can use Finviz to screen for oversold stocks using the RSI indicator:

1. Go to the Finviz Screener
   To get started, go to the Finviz website and navigate to the Screener tab. This will take you to a page where you can set up filters to screen stocks based on various technical and fundamental criteria.

2. Set the RSI Filter
   In the Technical tab of the screener, you will find an option to filter stocks by Relative Strength Index (RSI). Set the RSI filter to "Oversold (RSI < 40)" or "Oversold (RSI < 30)" to narrow down the list to stocks that are potentially oversold.

3. Combine RSI with Other Indicators
   While RSI is a powerful tool, it’s often beneficial to combine it with other technical indicators to increase the accuracy of your analysis. For instance, you could use the 50-day or 200-day moving average to determine whether the stock is trending downward or upward. You could also add filters for Volume or Market Cap depending on your trading strategy.

4. Look at the Chart
   Once you’ve applied your filters, Finviz will provide you with a list of stocks that match your criteria. It’s important to view the stock charts to analyze the price movement and identify potential support and resistance levels. This can help you determine whether the stock is likely to rebound or continue its downward trend.

5. Analyze News and Fundamentals
   Even though you’re using technical indicators to find oversold stocks, it’s always a good idea to check the company’s fundamentals and recent news. This will give you a more comprehensive view of the stock’s overall situation. For instance, a stock may be oversold due to a temporary issue, which could present a buying opportunity, or it could be facing long-term problems that may lead to further declines.

Key Technical Indicators for Identifying Oversold Stocks

In addition to RSI, there are several other technical indicators that can help you identify oversold stocks:

• Stochastic Oscillator
  The stochastic oscillator compares a stock's closing price to its price range over a specific period. Like RSI, it ranges from 0 to 100, and a reading below 20 typically indicates that a stock is oversold.

• MACD (Moving Average Convergence Divergence)
  MACD is a trend-following momentum indicator that shows the relationship between two moving averages of a stock’s price. When the MACD crosses below the signal line, it can indicate that a stock is oversold and may be due for a rebound.

• Bollinger Bands
  Bollinger Bands consist of a moving average and two standard deviation lines. When a stock’s price touches or falls below the lower Bollinger Band, it may be oversold, especially if accompanied by high volume.

The Role of Volume in Confirming Oversold Conditions

While RSI and other technical indicators are useful for identifying oversold stocks, volume can play a critical role in confirming these signals. A stock may show oversold conditions, but without a significant change in trading volume, the reversal might not be strong or sustained.

• Rising Volume in Oversold Stocks
  If a stock is oversold based on RSI but shows increasing volume as the price declines, it may suggest that sellers are exhausting themselves and that buyers could step in, leading to a reversal.

• Low Volume and Oversold Stocks
  Conversely, if a stock is oversold but the volume remains low, the price may continue to decline, as there isn’t enough buying pressure to push it higher. Therefore, it’s always important to consider volume alongside technical indicators.

Case Study: How Oversold Stocks Rebounded

To further illustrate how to identify and trade oversold stocks, let’s take a look at a case study:

• Stock XYZ
  Stock XYZ, a large-cap technology company, saw a 30% decline in its stock price due to disappointing earnings results and concerns about slowing growth. As the price continued to fall, its RSI dropped below 30, indicating that it was oversold. At the same time, the stock’s volume spiked, suggesting that sellers were dumping shares at a rapid pace.

  However, after several days of high-volume selling, the stock found support near its 200-day moving average, and buyers began to step in. The RSI started to rise, and the price began to recover, ultimately gaining 20% over the next month.

  Key Takeaway: In this case, combining RSI with volume and moving average analysis helped traders identify a potential buying opportunity in an oversold stock.

How to Manage Risk When Trading Oversold Stocks

While oversold stocks can present attractive opportunities, they can also be risky, as stocks that are oversold can continue to decline. Therefore, it’s important to have a risk management strategy in place. Here are some tips:

• Set Stop-Loss Orders
  One of the simplest ways to manage risk is by using stop-loss orders. By setting a stop-loss order below a key support level, you can limit your losses if the stock continues to decline.

• Diversify Your Portfolio
  Don’t put all your money into one oversold stock. Instead, diversify your portfolio across different sectors and asset classes to reduce risk.

• Use Position Sizing
  Position sizing is a technique where you only allocate a small percentage of your capital to any single trade. This ensures that even if the trade goes against you, your overall portfolio won’t suffer significant losses.

Conclusion

Identifying oversold stocks on Finviz can be a powerful tool for traders looking to capitalize on potential rebounds. By using technical indicators like RSI, Stochastic Oscillator, and MACD, combined with volume analysis, you can find stocks that may be due for a reversal. However, it’s important to manage risk and combine technical analysis with fundamental research to increase your chances of success.

By following these steps and continually refining your strategy, you can use Finviz to find oversold stocks that have the potential to generate significant returns.