The best stocks to buy now are deeply oversold stocks ready to bounce off support.
Why You Must Have a Stock Screener
Use a stock screener. You need to get yourself a stock screener because there’s no way you’ll have the time to manually look at thousands of stocks that have sold off every day to see if they are ready to bounce. The best free stock screener for spotting oversold stocks is called Finviz and you can get it free here.
The Parameters You Need To Set In Your Stock Screener
After you set up a free account on Finviz, click on Screener in the top left side of the window. You want to screen for stocks with a market cap between $300 million to $2 billion, a beta greater than 1.5, a price under $10, EPS growth the next 5 years over 15%, average volume greater than 1 million, and the RSI not oversold greater than 40. The reason you want the RSI to be not oversold and greater than 40 is that you want stocks that are oversold, have formed a candle over candle, and are curling up and starting to move higher.
When you find a stock that meets all the criteria above, you add it to your watchlist while you wait for a candle over candle pattern to form on the chart. Often times oversold stocks go even lower. By having a watchlist and stalking the stock, you can sit back and watch the stock drop even lower while you wait for your perfect setup.
Having a watchlist and using it in the right way is the most important tool you have as a trader. This concept is so important, I added a lesson on watchlists here.opens in a new window
Stock Chart Patterns
Here is a list of the most profitable stock chart patterns you want to look for.
Long lower shadow – Charts that have a long lower shadow on a recent candlestick pattern are ideal for timing reversals. The long the lower shadow of the candlestick, the better. Again, you don’t have to buy the day of the longer lower shadow because you want a candle over candle and a curl upward pattern before buying. A long lower shadow within the last 3 or 4 days is good.
Candle over candle – After a stock reverses, the first day that closes above the close of the previous day is a candle over candle pattern. The reason you are looking for this pattern is because you want evidence that buyers are stepping in and buying off the current level. You’ve heard the saying don’t try and catch a falling knife. This is how you avoid jumping too early and getting killed if the stock continues to go lower. You want the stock to curl or bounce up and form a candle over candle first before going long.
Alligator – The alligator pattern is great for timing your entry and exists. You plot 3 simple moving averages on a chart. Use a 2 day, 6 day, and 7 day moving average. When a stock moves up, the moving averages will cross at different times resembling an alligator opening its mouth. In the video lesson below, I go over the Alligator pattern and then you get to hear from “Jedi” Luke on how he uses this pattern for his day trades and swing trades.
Frequently Asked Questions about Finding the Best Stocks To Buy Now
What are the most reliable candlestick patterns?
The reason the Doji is such a reliable candlestick pattern that often occurs at trend reversals is that it signifies a heavy battle between the Bulls and the Bears that resulted in no one gaining the advantage over the other. This uncertainty with who is the dominant group calls into question the previous trend before the Doji.
The reason the Hammer or any long lower shadow candlestick that occurs after a down trend is a reliable trend reversal pattern is that it shows the Bears taking the stock much lower but then a massive amount of buying took place (or short covering) that drove the stock all the way back up to close positive for the day. That strikes fear in the hearts of Bears when they see that sort of massive buying take place.
Finviz has a nice long lower shadow candlestick screener that will help you find trend reversal stocks. Go to Finviz, click on “Screener”, then click “Technical”, then in the “Candlestick” field select “Long Lower Shadow”:
StockGoodies Chart-School posted the excellent video below called Single Candlestick Reversal Signals.
What is the best swing trading setup?
The best swing trading setup is the oversold pattern on a short squeeze.
There are other swing trading patterns that occur more often than an oversold setup that are also really good such as Fibonacci retracements. While you may not get an oversold swing move down, you may get a Fibonacci retracement entry.
Tom Willard posted the excellent video below called A Top Swing Trading Pattern.
What is the Alligator indicator?
The Alligator indicator is three moving averages of different time frames that signal entry and exit trades. The Alligator indicator gets its cool name from the fact that the moving averages look like an Alligator opening its mouth.
The original Alligator indicator was created by Bill Williams of Profitunity.
Vic Noble posted the video below called The Alligator Indicator which gives you the actual settings to use from Bill Williams.
Profitunity posted the video below from the creator of the Alligator indicator, Bill Williams. You will hear Bill Williams talk about how he created the Alligator pattern.