Thursday, July 20th, 2006
Create a CAN SLIM stock screen
Many momentum and aggressive growth investors start their journey with the writings of William O’Neil, learning to cut losses, buy breakouts and take into account the broader market. But while the basics of O’Neil’s CAN SLIM system have stood the test of time, most successful investors go on to modify it to suit their own needs.
One challenge of implementing CAN SLIM is the large and complex number of variables. Successful investing requires having a clearly defined system that gives you an ‘edge’. Consistently using that edge over time generates profits.
If a system has too many variables then it’s difficult to make clear investment decisions. One handicap of a complex system is constantly finding excuses not to place a trade. As Legg Mason’s Michael Mauboussin explains in this excellent article research shows that having more information doesn’t always improve accuracy.
A successful trading or investment system will isolate the key factors that give the trade an edge, i.e. a greater chance of being profitable. Under the CAN SLIM method this means fast growing and accelerating sales and earnings; high relative strength; the stock being in an uptrend and making a new high; and, a bull market.
Here’s a basic modified CAN SLIM stock screen that shows how it can be simplified to make it easier to implement over the long term. If a stock ticks all the boxes buy it. If it doesn’t, then pass it.
TECHNICALS:
1. Shares hitting a new 52-week high
2. Trading above its rising 50-day moving average
3. Trading above its rising 50-week moving average
4. Relative strength rating > 80 (Based on IBD ranking)
FUNDAMENTALS:
5. Last annual EPS growth > 18 per cent
6. Last quarter/half’s EPS growth > 18 per cent and accelerating
7. Last annual sales growth > 18 per cent
8. Last quarter/half’s sales growth > 18 per cent
MARKET:
9. Relevant index trading above its rising 50-day moving average
10. Relevant index trading above its rising 50-week moving average
Ben Power
Word Count: 300. This entry was posted on Thursday, July 20th, 2006 at 6:47 pm and is filed under Breakout trading, Growth stock screens, Other growth gurus. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
