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How to Make Money in Stocks

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Puneet Chandra
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82 views

How to Make Money in Stocks

Uploaded by

Puneet Chandra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Annual Earnings represent the second
component, emphasizing the importance of
consistent annual earnings growth. O'Neil
recommends targeting companies that
demonstrate a compounded annual growth rate
of at least 25% over the past three to five years.
This consistency is essential because it reflects a
company's ability to thrive in various market
conditions and economic cycles.

The third element, New Products, underscores


innovation as a critical driver for a company’s
growth. Whether it's the launch of a
groundbreaking product, entry into new markets,
or any significant positive development, new
catalysts often propel a company's earnings and,
consequently, its stock price.

Supply and Demand, the fourth component,


examines the trading volume of a stock. Stocks
with high demand typically exhibit significant
trading volume, indicating strong investor
interest. O'Neil advises focusing on stocks with

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accelerating volume patterns, as these are often
harbingers of upward price movement.

Leader or Laggard is the fifth component


emphasizing the importance of investing in
market leaders rather than laggards. Market
leaders are stocks that consistently outperform
their peers, showcasing superior price
performance and relative strength. Identifying
and investing in leaders increases the likelihood
of riding the wave of significant price
appreciation.

The sixth element, Institutional Sponsorship,


relates to the involvement of institutional
investors like mutual funds, pension funds, and
insurance companies. Institutional accumulation
of a stock generally signifies endorsement from
professional investors and often precedes
substantial price increases. O'Neil stresses the
importance of investing in stocks with increasing
institutional sponsorship.

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Lastly, Market Direction is a critical component
tying the CAN SLIM strategy together.
Understanding the overall market trend is crucial
because even the best stocks are affected by the
broader market direction. O'Neil advocates for
recognizing market cycles and using indicators,
such as moving averages and market indexes, to
determine the optimal times for buying and
selling stocks.

Historically, the CAN SLIM strategy has


demonstrated remarkable success. By
meticulously applying these seven components,
investors have achieved impressive gains. O'Neil's
methodology is underpinned by extensive
research and a deep understanding of stock
market behavior, making CAN SLIM a robust
and reliable investment strategy. Throughout
various market cycles, the CAN SLIM approach
has facilitated the identification of
high-performance stocks, contributing to its
acclaim and widespread adoption among
investors seeking consistent and substantial

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returns.

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markets are often driven by strong economic
indicators such as rising GDP, increasing
corporate earnings, and low unemployment rates.
In contrast, bear markets might feature falling
corporate earnings, higher unemployment rates,
and diminishing investor confidence.

Market indexes such as the Dow Jones Industrial


Average (DJIA), the S&P 500, and the NASDAQ
Composite are indispensable tools for gauging
overall market direction and sentiment. These
indexes represent the performance of selected
stocks and offer a broad overview of market
health. By analyzing these indexes, investors can
recognize patterns and trends that indicate
whether the market is in an upward, downward,
or sideways phase.

Chart patterns are another critical component of


market trend analysis. O'Neil emphasizes the
importance of reading price and volume charts to
make informed investment decisions. Chart
patterns like the “cup and handle,” “head and

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shoulders,” and “double bottom” serve as visual
representations of investor behavior and market
psychology.

The “cup and handle” pattern, for example, is a


bullish continuation pattern that indicates a
possible upward trend following a consolidation
period. When an investor notices this pattern
forming, it suggests a buying opportunity.
Conversely, the “head and shoulders” pattern is a
bearish signal indicating a potential market
reversal. Recognizing this pattern may prompt an
investor to sell or avoid new investments in that
stock.

Volume—a measure of how many shares are


traded within a specific period—is another vital
indicator: an increasing volume during an
upward price trend suggests strong investor
confidence and the likelihood of continued price
appreciation. Conversely, decreasing volume in
an upward trend might signal weakening
momentum.

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O’Neil’s methodology also heavily utilizes moving
averages, especially the 50-day and 200-day
moving averages. These indicators smooth out
price data to help identify the direction and
strength of trends. A "golden cross" occurs when
the 50-day moving average crosses above the
200-day moving average, signifying potential for
upward momentum. In contrast, a "death cross,"
when the 50-day average falls below the 200-day
average, signals potential for downward
momentum.

Utilizing these tools and techniques enables


investors to time their market entries and exits
more effectively. Buying when the market shows
strength and selling when there are indications of
weakness fundamentally adheres to the CAN
SLIM philosophy of aligning investments with
market directions.

In summary, the analysis of market trends and


timing is crucial for leveraging the CAN SLIM

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strategy. Recognizing the phases of market cycles,
reading market indexes, and interpreting chart
patterns provide investors with the insights
needed to make strategic decisions. William J.
O’Neil’s emphasis on these aspects underscores
the value of meticulous market analysis and
astute timing in achieving stock market success.

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