FAMOUS STRATEGIES

CAN SLIM

William J. O'Neil · 1980s. A checklist approach combining earnings growth, relative strength, supply and demand, and overall market direction before a position is considered.

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Classification: published rulebook. Rulebook: CAN SLIM is a published seven-part checklist with defined buy and sell rules, so it can be applied and tested step by step. The entry, exit and stop-loss sections below describe documented rules.

ORIGIN

Where it comes from

William J. O'Neil, founder of Investor's Business Daily, set out CAN SLIM in How to Make Money in Stocks (first published in 1988). The method grew out of his study of the common traits of large past stock winners, and it combines company earnings with price and volume behaviour.

Core principles

Buy leaders, not laggards.

Combine fundamentals (earnings) with technicals (price and volume).

Buy proper chart-pattern breakouts, not stocks that have already run.

Cut losses while they are small.

Buy only when the overall market is in a healthy uptrend.

AT A GLANCE

RULEBOOK

William J. O'Neil

1980s

Well documented and publishable as a rule set. You can write it down, test it and follow it step by step.

Screen before you trade

HOW IT WORKS

The method in plain terms.

A documented rule set, summarised for education.

CAN SLIM is a seven-part checklist: C, current quarterly earnings growth. A, annual earnings growth. N, something new (a product, management change or a new price high). S, supply and demand (share float and volume). L, leader rather than laggard, judged by relative strength. I, institutional sponsorship. M, market direction.

A stock that passes the screen is then watched for a proper chart base (a common one is the "cup with handle") and bought only as it breaks out of that base.

Market direction comes first in practice: even a checklist-perfect stock is usually a poor buy when the general market is in a correction.

ENTRY

Entry rules

Confirm that the general market is in a confirmed uptrend (M).

Screen for strong current quarterly earnings growth and multi-year annual growth (C, A). Commonly cited thresholds are around 20–25% or higher, and they are guidelines rather than laws.

Look for a catalyst or new high (N) and a leader with high relative price strength (L).

Check supply and demand and institutional interest (S, I).

Buy the breakout from a sound base on clearly above-average volume (often cited as 40–50% higher), close to the pivot point and not extended well above it.

EXIT

Exit rules

Sell immediately if the stock reaches the maximum-loss level (see stop-loss rules).

Take profits in the commonly cited 20–25% area on ordinary breakouts. Hold longer only for exceptional fast starters.

Sell into climactic price runs on very heavy volume, or when a leader breaks a key moving average on heavy volume.

Reduce or exit when the overall market shifts into a correction.

PROTECTION

Stop-loss rules

Cut the loss when price falls 7–8% below your purchase price. This is the rule O'Neil is best known for.

Never average down, and do not renegotiate the stop after entry.

In very volatile stocks or markets, use smaller position size rather than a wider stop.

RISK

Risk management

With a fixed stop percentage, position size = your risk limit ÷ stop percentage. A tighter stop allows a larger position for the same risk.

Hold a limited number of leaders rather than many names, and avoid heavy concentration in one industry.

Reduce exposure when the market direction turns.

Keep a written record of the reason for every buy and sell.

WORKED EXAMPLES

One that worked, one that failed.

Both charts are schematic drawings of the idea. They are illustrative scenarios, not recorded trades or real market data.

SUCCESSFUL EXAMPLE

Illustrative winner: a leader breaking out of a base

A strong-earnings leader forms a multi-week base while the market is in a confirmed uptrend, then breaks out on heavy volume.

Entry
Buy at the breakout, within a few percent of the pivot point.

Exit
Sell into strength in the commonly cited profit-taking zone, or when the stock breaks a key moving average on heavy volume.

Stop-loss
The stop sits 7–8% below the purchase price and is never touched.

Lesson
Aligning earnings, chart base and market direction puts the odds on your side but does not remove the stop.

FAILED EXAMPLE

Illustrative loser: buying just before a market correction

A good-looking breakout occurs, but the overall market rolls over into a correction a few days later.

Entry
Buy the base breakout.

Exit
Stopped out when the loss reaches 7–8%.

Stop-loss
The stop caps the loss at the planned percentage.

Lesson
Even a checklist-perfect stock fails when the market turns; the 7–8% rule keeps the loss small.

WHEN IT FITS

Suitable market conditions

Confirmed market uptrends, especially early in a new advance.

Periods when several strong-earnings leaders are forming bases.

Liquid growth stocks with reliable quarterly reporting.

WHERE IT STRUGGLES

Limitations

It is a long-only stock method with little to say in sustained bear markets except to stay small or in cash.

It relies on earnings data and relative-strength ratings that may come from paid or delayed sources.

Thresholds are quoted differently across editions and sources, so do not treat any single number as a fixed law.

It is tilted towards growth stocks, which can struggle when markets rotate away from growth.

The criteria were built on US stock history, so applying them to other markets, such as Indian stocks, needs adaptation and testing.

AVOID

Common mistakes

Buying extended stocks well past the buy point.

Ignoring the market-direction step.

Averaging down on a loser.

Screening on earnings alone and skipping the chart base.

Holding through the stop "because the fundamentals are good".

PRACTICE

Practice checklist

☐ Write down the seven CAN SLIM answers for a candidate before looking at its price.

☐ Identify the base type and its pivot point.

☐ Confirm volume on the breakout day.

☐ Compute the stop from your maximum loss and work out position size from it.

☐ Log the market status (uptrend or correction) next to every entry.

Frequently asked questions

Do I need paid tools to use CAN SLIM?
O'Neil's own materials rely on Investor's Business Daily data and ratings. You can approximate the screens with public financial data, but results may differ.

Does CAN SLIM work outside the US?
It was built from US stock history. The ideas (earnings growth, leadership, base breakouts, loss-cutting) can be tested on other markets, but the thresholds may need adapting. Test before trusting.

Is the 7–8% stop fixed?
It is the rule most associated with O'Neil, and exact thresholds are guidelines. What matters is having a written maximum loss and sticking to it.

SOURCES

Where to read more.

Plain-text references for further reading. Check specifics against the original material before relying on them.

William J. O'Neil — How to Make Money in Stocks (first published 1988; several later editions)

Investor's Business Daily educational material from William O'Neil + Co.

Educational reference only. TCT does not teach, sell or recommend this strategy. Descriptions are summaries of publicly known approaches, the examples are illustrative, and past performance of any trader or system does not indicate future results. Trading involves risk of loss.