Any investing strategy must answer two crucial questions:
What to invest in?
When to invest (and exit)?
The first question pertains to the “Stock Selection” aspect of the strategy, which comprises rules and techniques for “Stock Screening.” The CANSLIM investing system offers such stock selection tools, developed after a rigorous back-testing on ~100 years of stock data. Simple yet strong, these tools equip investors with a faster, effective, and comprehensive analysis of a stock:
In the stock market, nothing works 100% of the time. That’s why you have to be prepared to deal with failed signals. In CAN SLIM, the market itself – the M in CAN SLIM – is the most important factor for making money. Your chances of grabbing profits in growth stocks increase when the market is acting right.
According to the O’Neil methodology, every major stock market bottom featured a follow-through day. It essentially confirms that a fledgling uptrend in stocks is underway.
The financial collapse of 2007 and the recession that followed left many economists on the defensive. News programs, magazines, pundits, and even Queen of England all asked some variant of questions, why didn’t you see it coming? Some in the economics community wrote articles or convened conferences to examine how they could have gotten it so wrong; others engaged in a full-throated defense of their profession. For many who were hostile to the fundamental assumptions of mainstream economics, the crisis was proof that they had been right all along: the emperor was finally shown to have no clothes. Public confidence in authority was badly shaken.
“Just remember buying at new highs is buying into emerging strength.” – William J. O’Neil
Overhead supply, also known as percent off high, represents price levels at which a stock’s recovery is impeded as it tries to rally back from a steep decline. The pressure comes in the form of investors who bought the stock earlier at lofty prices and are waiting for the stock to recover just enough so they can sell and break even.
“A standout stock needs both a sound growth record in the recent years and a strong current earnings record in the last several quarters. It’s the powerful combination of these two critical factors, rather than one or the other, that creates a super stock, or at least one that has a higher chance for true success.” – William J. O’Neil, MarketSmith Founder
For an investor, having the right approach toward choosing a stock is the key to making sound investments. Identifying leaders in a market uptrend and timing the purchases at the right entry point or a breakout will be an ideal strategy. Here are the three basic steps that come handy while taking new positions.