CANSLIM

CANSLIM is an acronym for an investment strategy based upon claimed common characteristics shared by best-performing stocks.

The investing mechanism and process

CANSLIM is a growth stock investment strategy formulated from the study of the 500 best performing stock market winners dating back to 1953 in the book [http://books.mcgraw-hill.com/getbook.php?isbn=0071373616 How to Make Money in Stocks: A Winning System In Good Times or Bad, 3rd Edition (May 23, 2002) ISBN 0071373616.] by William J. O'Neil. This strategy involves implementation of both technical analysis and fundamental analysis.

The goal of the strategy is to discover leading stocks before they make major price advances. These pre-advance periods are "buy points" that are emerging from price consolidation areas (or "bases"), typically in the form of a "cup & handle" price pattern, of at least 7 weeks on weekly price charts.

Components of CANSLIM

Each letter in CANSLIM stands for common characteristics which proponents claim are found in the greatest stock market leaders over the past 50 years:
* C = Current earnings per share. They should be up 75% or more. [cite book|title=The Successful Investor|date=2004|pages=p. 155|author=William J.O'Neil] [cite book|title=Trade Your Way to Financial Freedom (2nd ed)|date=2007|pages=p. 238|author=Van K. Tharp] [cite book|title=How to Make Money in Stocks (3rd ed)|date=2002|pages=p. 7|author=William J.O'Neil] [cite book|title=Lessons from the Greatest Stock Traders of All Time|date=2004|pages=p. 103|author=John Boik] [cite book|title=Market Wizards: Interviews with Top Traders|date=1993|pages=p. 222|author=Jack D. Schwager] [cite book|title=Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading|date=2002|pages=p. 15|author=Jon Leizman] [cite book|title=International Encyclopedia of Technical Analysis|date=2000|pages=p. 49|author=Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel] [cite book|title=The McGraw-Hill Investor's Desk Reference|date=2000|pages=p. 422|author=Ellie Williams] [cite book|title=Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology)|date=2005|pages=p. 171|author=Ellen Hertz] [cite book|title=Technical Analysis from A to Z, 2nd Edition|date=Oct 2, 2000|pages=p. 91|author=Steven B. Achelis]
* A = Annual earnings. They should be up 25% or more in each of the last three years. [ cite book|title=The Successful Investor|date=2004|pages=p. 156|author=William J.O'Neil] [cite book|title=Trade Your Way to Financial Freedom (2nd ed)|date=2007|pages=p. 238|author=Van K. Tharp] [cite book|title=How to Make Money in Stocks (3rd ed)|date=2002|pages=p. 16|author=William J.O'Neil] [cite book|title=Lessons from the Greatest Stock Traders of All Time|date=2004|pages=p. 104|author=John Boik] [cite book|title=Market Wizards: Interviews with Top Traders|date=1993|pages=p. 222|author=Jack D. Schwager] [cite book|title=Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading|date=2002|pages=p. 15|author=Jon Leizman] [cite book|title=International Encyclopedia of Technical Analysis|date=2000|pages=p. 49|author=Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel] [cite book|title=The McGraw-Hill Investor's Desk Reference|date=2000|pages=p. 422|author=Ellie Williams] [cite book|title=Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology)|date=2005|pages=p. 171|author=Ellen Hertz] [cite book|title=Technical Analysis from A to Z, 2nd Edition|date=Oct 2, 2000|pages=p. 91|author=Steven B. Achelis]
* N = New. The company should either be under new management, have a new product, or have a new service. It should also have a new high for its stock price. [cite book|title=The Successful Investor|date=2004|pages=p. 156|author=William J.O'Neil] [cite book|title=Trade Your Way to Financial Freedom (2nd ed)|date=2007|pages=p. 238|author=Van K. Tharp] [cite book|title=How to Make Money in Stocks (3rd ed)|date=2002|pages=p. 24|author=William J.O'Neil] [cite book|title=Lessons from the Greatest Stock Traders of All Time|date=2004|pages=p. 105|author=John Boik] [cite book|title=Market Wizards: Interviews with Top Traders|date=1993|pages=p. 222|author=Jack D. Schwager] [cite book|title=Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading|date=2002|pages=p. 15|author=Jon Leizman] [cite book|title=International Encyclopedia of Technical Analysis|date=2000|pages=p. 49|author=Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel] [cite book|title=The McGraw-Hill Investor's Desk Reference|date=2000|pages=p. 422|author=Ellie Williams] [cite book|title=Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology)|date=2005|pages=p. 171|author=Ellen Hertz] [cite book|title=Technical Analysis from A to Z, 2nd Edition|date=Oct 2, 2000|pages=p. 91|author=Steven B. Achelis]
* S = Shares of common stock Outstanding:Keep it small. The price of a common stock with 300 million shares outstanding is hard to budge up because of the large supply of stock available. [cite book|title=The Successful Investor|date=2004|pages=p. 157|author=William J.O'Neil] [cite book|title=How to Make Money in Stocks (3rd ed)|date=2002|pages=p. 32|author=William J.O'Neil] [cite book|title=Trade Your Way to Financial Freedom (2nd ed)|date=2007|pages=p. 239|author=Van K. Tharp] [cite book|title=Lessons from the Greatest Stock Traders of All Time|date=2004|pages=p. 105|author=John Boik] [cite book|title=Market Wizards: Interviews with Top Traders|date=1993|pages=p. 222-223|author=Jack D. Schwager] [cite book|title=Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading|date=2002|pages=p. 15|author=Jon Leizman] [cite book|title=International Encyclopedia of Technical Analysis|date=2000|pages=p. 49|author=Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel] [cite book|title=The McGraw-Hill Investor's Desk Reference|date=2000|pages=p. 423|author=Ellie Williams] [cite book|title=Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology)|date=2005|pages=p. 171|author=Ellen Hertz] [cite book|title=Technical Analysis from A to Z, 2nd Edition|date=Oct 2, 2000|pages=p. 92|author=Steven B. Achelis]
* L = Leader or laggard? Within an industry, always choose the company that is leading the way, not one that is following in another's footsteps. [cite book|title=The Successful Investor|date=2004|pages=p. 157|author=William J.O'Neil] [cite book|title=How to Make Money in Stocks (3rd ed)|date=2002|pages=p. 37|author=William J.O'Neil] [cite book|title=Trade Your Way to Financial Freedom (2nd ed)|date=2007|pages=p. 239|author=Van K. Tharp] [cite book|title=Lessons from the Greatest Stock Traders of All Time|date=2004|pages=p. 105|author=John Boik] [cite book|title=Market Wizards: Interviews with Top Traders|date=1993|pages=p. 223|author=Jack D. Schwager] [cite book|title=Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading|date=2002|pages=p. 15|author=Jon Leizman] [cite book|title=International Encyclopedia of Technical Analysis|date=2000|pages=p. 49|author=Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel] [cite book|title=The McGraw-Hill Investor's Desk Reference|date=2000|pages=p. 423|author=Ellie Williams] [cite book|title=Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology)|date=2005|pages=p. 171|author=Ellen Hertz] [cite book|title=Technical Analysis from A to Z, 2nd Edition|date=Oct 2, 2000|pages=p. 92|author=Steven B. Achelis]

* I = Institutional sponsorship. Make sure large mutual fund companies (and other institutions) are investing in your stock - you can ride on their capital. Also, focus on the better performing institutions buying your stock. [cite book|title=The Successful Investor|date=2004|pages=p. 158|author=William J.O'Neil] [cite book|title=How to Make Money in Stocks (3rd ed)|date=2002|pages=p. 42|author=William J.O'Neil] [cite book|title=Trade Your Way to Financial Freedom (2nd ed)|date=2007|pages=p. 239|author=Van K. Tharp] [cite book|title=Lessons from the Greatest Stock Traders of All Time|date=2004|pages=p. 107|author=John Boik] [cite book|title=Market Wizards: Interviews with Top Traders|date=1993|pages=p. 223|author=Jack D. Schwager] [cite book|title=Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading|date=2002|pages=p. 15|author=Jon Leizman] [cite book|title=International Encyclopedia of Technical Analysis|date=2000|pages=p. 49|author=Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel] [cite book|title=The McGraw-Hill Investor's Desk Reference|date=2000|pages=p. 423|author=Ellie Williams] [cite book|title=Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology)|date=2005|pages=p. 171|author=Ellen Hertz] [cite book|title=Technical Analysis from A to Z, 2nd Edition|date=Oct 2, 2000|pages=p. 92|author=Steven B. Achelis]
* M = Market trends and market indices. Recognize the cup and handle pattern, as well as other market correction footprints. Know when a stock has peaked out. Also, buy stocks only when the Dow, S&P 500, and Nasdaq are going up. [cite book|title=The Successful Investor|date=2004|pages=p. 158|author=William J.O'Neil] [cite book|title=How to Make Money in Stocks (3rd ed)|date=2002|pages=p. 48|author=William J.O'Neil] [cite book|title=Trade Your Way to Financial Freedom (2nd ed)|date=2007|pages=p. 239|author=Van K. Tharp] [cite book|title=Lessons from the Greatest Stock Traders of All Time|date=2004|pages=p. 107|author=John Boik] [cite book|title=Market Wizards: Interviews with Top Traders|date=1993|pages=p. 223|author=Jack D. Schwager] [cite book|title=Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading|date=2002|pages=p. 15|author=Jon Leizman] [cite book|title=International Encyclopedia of Technical Analysis|date=2000|pages=p. 49|author=Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel] [cite book|title=The McGraw-Hill Investor's Desk Reference|date=2000|pages=p. 423|author=Ellie Williams] [cite book|title=Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology)|date=2005|pages=p. 171|author=Ellen Hertz] [cite book|title=Technical Analysis from A to Z, 2nd Edition|date=Oct 2, 2000|pages=p. 92|author=Steven B. Achelis]

Cutting losses

The strategy is one that strongly encourages cutting all losses at no more than 7% or 8% below the buy point, with no exceptions, to minimize losses and to preserve gains. It is stated in the book, that buying stocks from solid companies should generally lessen chances of having to cut losses, since a strong company (good current quarterly earnings-per-share, annual growth rate, and other strong fundamentals) will usually shoot up--in bull markets--rather than descend.

O'Neil has stated that the CANSLIM strategy is not "momentum investing", but that the system identifies companies with strong fundamentals--big sales and earnings increases which is a result of unique new products or services--and encourages buying their stock when they emerge from price consolidation periods (or "bases") and before they advance dramatically in price.

References

Books Referencing CAN SLIM

*"Master Traders: Strategies for Superior Returns from Today's Top Traders (Wiley Trading)", by Fari Hamzei and Steve Shobin (Hardcover - Oct 6, 2006)
*"Technical Analysis: The Complete Resource for Financial Market Technicians", by Charles D. Kirkpatrick and Julie R. Dahlquist (Hardcover - Aug 18, 2006)
*"Technical Analysis from A to Z, 2nd Edition", by Steven B. Achelis (Hardcover - Oct 2, 2000)
*"Online Investing Bible (Bible (Wiley))", by Jill S. Gilbert, Thomas S. Gray, Claire Mencke, and Jill Gilbert Welytok (Paperback - Jan 2001)
*"Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading", by Jon Leizman (Hardcover - Feb 15, 2002)
*"The McGraw-Hill Investor's Desk Reference", by Ellie Williams (Hardcover - Oct 19, 2000)
*"International Encyclopedia of Technical Analysis", by Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (Hardcover - Feb 2000)
*"Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology)", by Ellen Hertz (Paperback - Aug 31, 2005)
*"Applying Elliott Wave Theory Profitably", by Steven W. Poser (Hardcover - Jul 18, 2003)
*"Trade Your Way to Financial Freedom" (2nd ed), by Van K. Tharp (Hardcover - 2007)
*"The Vital Few vs. the Trivial Many : Invest with the Insiders, Not the Masses", by George Muzea (Paperback - Oct 29, 2004)
*"Understanding Stocks", by Michael Sincere (Paperback - Aug 19, 2003)
*"All About Retirement Funds : The Easy Way to Get Started" by Ellie Williams Clinton (Paperback - Sep 17, 2003)
*"The Hedge Fund Edge: Maximum Profit/Minimum Risk Global Trend Trading Strategies (Wiley Trading)", by Mark Boucher (Hardcover - Oct 30, 1998)
*"How Legendary Traders Made Millions" by John Boik (Paperback - Mar 23, 2006)
*"Dave Landry's 10 Best Swing Trading Patterns and Strategies" by Dave Landry (Paperback - Nov 1, 2003)
*"How to Make Money Selling Stocks Short" by William J O'Neil and Gil Morales (Paperback Dec 24, 2004)

CANSLIM Internet Resources

* [http://www.investors.com William O'Neil's Investors Business Daily. News, tutorials, commentary]
* [http://www.reuters.com/article/pressRelease/idUS194304+31-Jan-2008+BW20080131 IBD's CAN SLIM(R) Investing System Outperforms: +1521.7 vs. S&P 500 +54.92]