How to Make Money in Stocks: Summary of William J. O’Neil’s Book

If you’re a trader or investor looking to improve your market strategy, How to Make Money in Stocks by William J. O’Neil is a must-read. This investing classic introduces the CAN SLIM system, a method that blends technical and fundamental analysis to help investors find high-growth stocks before they make big moves.

In this article, I’ll give you a practical summary of the key points from the book so you can apply them to your trading.

📌 Who is William J. O’Neil?

William J. O’Neil is an investor, analyst, and the founder of the financial newspaper Investor’s Business Daily (IBD). His experience in the stock market led him to develop the CAN SLIM system, which combines fundamental and technical analysis to identify stocks with high growth potential before they surge.

🔍 What is the CAN SLIM Method?

The CAN SLIM system is an acronym for seven key criteria that help investors choose stocks with the highest potential for explosive growth. Each letter represents an essential factor that, according to O’Neil, the best-performing stocks in history had before their major breakouts.

✅ 1. C - Current Earnings

Look for companies with quarterly earnings growth of at least 25% compared to the previous year. The biggest stock market winners tend to show a surge in earnings before their stock prices skyrocket.

✅ 2. A - Annual Earnings Growth

Companies with a consistent upward trend in annual earnings have a higher chance of becoming big winners. O’Neil recommends looking for at least 25% annual earnings growth over the past three years.

✅ 3. N - New (Innovation)

The best stocks usually have something new: a new product, service, business model, leadership, or a strong recovery in fundamentals. Examples include Apple’s iPhone or Tesla’s electric car innovations.

✅ 4. S - Supply and Demand

Trading volume matters. O’Neil suggests focusing on stocks with strong buying volume, as this indicates institutional investors are stepping in. Also, consider the stock’s supply: fewer available shares with high demand drive prices up faster.

✅ 5. L - Leader or Laggard?

Pick industry leaders, not laggards. The strongest stocks have a high Relative Strength (RS) rating. O’Neil recommends focusing on stocks with an RS above 80 or 90.

✅ 6. I - Institutional Sponsorship

Big stock moves are often driven by hedge funds, mutual funds, and large institutions. Don’t buy stocks with no institutional backing, but also avoid those that are over-owned, as they may face large sell-offs.

✅ 7. M - Market Direction

The overall market trend affects all stocks. Learn to recognize whether the market is in a bullish or bearish phaseusing chart analysis and price action. O’Neil suggests tracking Relative Strength Index (RSI) and the S&P 500 trend.

📉 💡 Key Rules for Investing with CAN SLIM

Beyond the CAN SLIM system, O’Neil provides essential investing tips to maximize profits and reduce risks:

1. Use charts to spot breakout patterns. O’Neil emphasizes learning technical analysis and looking for patterns like the “cup with handle.”

2. Never buy stocks in a downtrend. Instead of “catching a falling knife,” buy when a stock breaks through resistance with strong volume.

3. Set a strict 7-8% stop-loss. If the price drops 7-8% below your entry point, sell immediately. Protecting your capital is key.

4. Let your winners run. The best stocks can rise hundreds or even thousands of percent. Don’t sell too early.

5. Follow the overall market trend. Avoid buying stocks in a bear market.

📊 Practical Example of the CAN SLIM Method

Imagine you find a stock with these characteristics:

✅ Quarterly earnings growth of 30%.

✅ Annual earnings growth of 35%.

✅ Launching a new disruptive product in its industry.

✅ High trading volume and a leader in its sector.

✅ Institutional investors are buying shares.

✅ The overall market is in an uptrend.

👉 Following CAN SLIM, this stock could have massive upside potential!

🚀 Conclusion: Does CAN SLIM Work?

The CAN SLIM system has proven to be an effective strategy for identifying high-growth stocks before their biggest moves. However, it’s not foolproof and requires discipline, risk management, and patience.

If you want to improve your stock trading strategy, studying and applying this method will increase your chances of success in the market.

📢 Would you like me to analyze a stock using the CAN SLIM method? Let me know in the comments! 🚀📈

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