CAN SLIM is a seven lettered word also known as the seven-pronged mnemonic which is publicized by the American famous national daily titled Investor’s Business Daily. These seven lettered word is regarded to be the checklist while choosing stocks for investment. It is a checklist of characteristics of the performing stocks, which is expected to give the maximum gains. William O’Neil is the man behind the development who served as the editor of Investor’s Business Daily. It is also reported that William O’Neil made several hundreds of millions of dollars by consistently using this approach.
The strategy of selecting stocks by this approach includes the implementation of both technical analysis and fundamental analysis. The fundamental goal of the strategy is to discover leading stocks before they make major price advances. The pre-advance periods are called “buy points” and emerge from price consolidation areas which are also called as “bases”. These areas emerge in the form of a “cup & handle” price pattern which takes into consideration a minimum of 7 weeks on weekly price charts.
Following are the seven parts of the mnemonic:
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.
Read How to invest in the India Stock Market on GWI.
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.