How to Find Stocks Before They Break Out | Investing For Beginners

This is how to find stocks before they break out. You see all these people will stocks that gain 100% in their portfolio and you want to be part of them. You are looking for ways to find stocks before they break out. While it sounds tricky, finding stocks before they increase in value is pretty easy. With a couple of factors like RSI and MACD you can start adding stocks to your portfolio right now. You can use the RSI indicator to find stocks. Perfect in investing for beginners.

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0:00 - Intro
0:59 - Using the RSI Indicator
2:50 - Does this Strategy Work?
5:04 - Finding New Stocks

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Sometimes finding stocks to invest in can be difficult especially when you are just starting out. Everyone invests in Apple, SPY, Walmart, but what if they are all making new highs and you don’t really want to invest in them when they are making those highs. While dollar cost averaging is great, this allows you to find new stocks that you typically wouldn’t invest in and it’s how I found two of my best performing stocks in my portfolio

When I look for these stocks I am using Think or Swim, or TD Ameritrade’s platform to find the stocks. They have this wonderful scanner that you can use to find stocks according to certain criteria. Other companies like ETrade and Tradestation have similar scanners, but I use Think or Swim because I like the platform the most.

The RSI indicator is the relative strength indicator, which is a momentum indicator used to evaluate oversold or overbought conditions on a stock. It’s been around since 1978 and it the readings on it go from 0 to 100. Typically, oversold means the RSI is below 30 while overbought means the indicator is above 70. When you buy a stock you generally don’t want it to be overbought unless you are just adding to your position every month and then it doesn’t really matter.

Now I am not just saying go out there and purchase every stock with an RSI of less than 30 because that’s not really how the strategy works. You can have stocks continue to decline in value even though they appear to be oversold on the RSI indicator. You want to find a stock that is near 30, still in the oversold area, but has been trending up in the past few weeks or months.

Let’s take a look at some fresh examples. Pulling up the scanner I have it set to find stocks with an RSI less than 60, but greater than 20. I don’t really want too many stocks that are below 20 to look at. It gives you a huge list with over 4000 names. I will sort by market cap, which as now you can see a bunch of tech stocks are getting into the oversold range. Just looking at AAPL They have an RSI around 55 and have been trending up just in the past couple weeks. Not bad, but how about some smaller names? Any healthcare stocks I generally avoid because I think they are just based off of FDA approvals and such. Here’s a decent one that is trending up and is sitting around the 46 range on the RSI. BUD, or Budweiser, has a slight trend up and its slightly oversold. Now this one won’t move as much as tech names, but it would not a bad place to start getting in over time.

The last example I will use is DOCU, or Docusign, a company I have had to use in the past and it looks like its trending up and is slightly oversold. Not a bad company to get because more people are probably going to be using digital signatures rather then coming in to sign papers right now.