HOW TO MAKE MONEY IN STOCKS SUMMARY (BY WILLIAM O’ NEIL)

Introduction

This tutorial summarizes key strategies for making money in stocks based on William O’Neil's best-seller, "How to Make Money in Stocks." Understanding these principles is crucial for any investor looking to improve their stock trading skills and maximize returns.

Step 1: Follow the CAN SLIM Strategy

• Understand CAN SLIM: This is a stock-picking strategy developed by William O’Neil. Each letter represents a key criterion for selecting stocks:
  • C - Current earnings: Look for companies with strong earnings growth.
  • A - Annual earnings: Seek firms with consistent annual earnings growth.
  • N - New products or services: Focus on companies introducing innovative offerings.
  • S - Supply and demand: Identify stocks that are in high demand but have limited supply.
  • L - Leader or laggard: Invest in market leaders, not laggards.
  • I - Institutional sponsorship: Look for stocks that have backing from big institutional investors.
  • M - Market direction: Be aware of overall market trends.
• Use the CAN SLIM-test: Before buying any stock, ensure it meets all these criteria to increase your chances of success.

Step 2: Determine Market Direction

• Identify Bull and Bear Markets: Use market indicators to assess whether the market is trending upwards (bull) or downwards (bear).
  • Tools to use:
    • Moving averages
    • Market breadth indicators
  • Implications:
    • In a bull market, consider using leverage to maximize gains.
    • In a bear market, raising cash can help protect your investments.

Step 3: Buy Stocks from Strong Bases

• Look for Strong Bases: A stock should not only meet the CAN SLIM criteria but also form strong technical patterns.
  • Ideal Patterns:
    • Cup with handle
    • Flat base
  • Why it matters: Stocks that form these bases are often poised for significant price increases.

Step 4: Know When to Sell

• Set Loss Limits: If a stock price falls below 7-8% of your purchase price, sell it. This helps limit losses and protects your capital.
• Face Reality: Acknowledge when your investment thesis is wrong and act quickly to minimize losses.

Step 5: Identify Selling Opportunities

• Develop a Selling System: Have a plan for when to take profits.
  • Key situations to sell:
    • When a stock hits a predetermined profit target.
    • If market conditions change negatively.
    • After a significant price drop or technical breakdown.
• Use Proven Methods: Consider adopting strategies from William O’Neil’s practices to guide your selling decisions.

Conclusion

By following these steps—adopting the CAN SLIM strategy, understanding market dynamics, recognizing strong stock patterns, knowing when to cut losses, and having a clear selling strategy—you can enhance your ability to make profitable investments in the stock market. As you progress, continuously educate yourself and refine your approach to investing, using insights from successful investors like William O’Neil.