The short version
William O'Neil studied the biggest winning stocks of the past century, looking at what they had in common just before their big runs. The answer became a seven-letter checklist, CAN SLIM: strong and rising earnings, something new, leadership in price, buying by large investors, and a rising market. He paired it with chart patterns that showed when to buy and a strict rule for when to sell.
Who he was
O'Neil (1933 to 2023) was an American investor and publisher. He started his own investment research firm in 1963, which became one of the first to build large databases of stock prices and company figures for analysis. In 1984 he launched a newspaper, Investor's Daily, renamed Investor's Business Daily in 1991, to put that kind of data in front of ordinary investors. His book How to Make Money in Stocks, first published in 1988, has been updated through several editions and is still one of the most read books on growth investing.
Many well-known traders came out of his firm or learned from his work, among them David Ryan, a three-time US Investing Champion. Mark Minervini's rules share the same leaders-first idea.
CAN SLIM, letter by letter
- C, current quarterly earnings. Earnings per share in the latest quarter well up on the same quarter a year earlier. He looked for at least 25%, and more is better.
- A, annual earnings. Strong growth over the last few years, not one good quarter.
- N, new. A new product, new management, a change in the industry, and a stock making new price highs. He wanted stocks coming out of a sound base near their highs, not bargains near their lows.
- S, supply and demand. Volume rising when the price rises, a sign that large buyers are taking stock.
- L, leader or laggard. Buy the leading stocks in leading industries. He used a relative strength rating and favoured stocks in the top fifth of the market.
- I, institutional sponsorship. Some ownership by funds, and that ownership growing.
- M, market direction. Three of every four stocks follow the market, so buy only when the market is in a confirmed uptrend.
Our screen checks the letters that can be read from prices and reported figures: C, N and L, plus a test that the stock is in an uptrend. A, S and I need data we don't carry in that list, and M is the market's direction, which we answer on the market timing page rather than emptying the list on a weak day.
Chart patterns: where to buy
O'Neil's buy points come from bases, the sideways periods a stock forms after a run. His best-known is the cup with handle: a rounded, U-shaped decline and recovery over several weeks to months, followed by a small, quiet pullback near the top (the handle). The buy point is when price clears the top of the handle on volume well above normal. He also described flat bases, double bottoms and the high tight flag: a stock that doubles in a few weeks and then rests in a narrow range.
The follow-through day
Since most stocks follow the market, O'Neil needed a way to tell when a correction was over. His answer was the follow-through day. After the market makes a low and starts a rally attempt, watch from about the fourth day onward for a session when a major index closes up strongly on higher volume than the day before. It doesn't guarantee a new uptrend, and many fail, but in his studies no new bull market began without one.
Selling: the 7% to 8% rule
O'Neil's best-known rule is about losses: sell any stock that falls 7% to 8% below your purchase price, every time, without waiting for it to come back. A 50% loss needs a 100% gain to recover; a 7% loss needs about 8%. Gains he took more patiently, often selling at 20% to 25% unless a stock moved so fast that it deserved more time.
His books
- How to Make Money in Stocks (1988, with later editions): CAN SLIM, chart patterns and selling rules.
- 24 Essential Lessons for Investment Success: the same method, in short lessons.
- How to Make Money Selling Stocks Short, with Gil Morales: the method turned around for falling markets.
US stocks with fast-growing quarterly earnings, near their highs and among the market's leaders, updated after each close.
Questions people ask
Who was William O'Neil?
An American investor and publisher (1933 to 2023). He started his own investment research firm in 1963, launched the newspaper Investor's Daily in 1984 (renamed Investor's Business Daily in 1991), and wrote How to Make Money in Stocks, the book that set out CAN SLIM.
What does CAN SLIM stand for?
C, current quarterly earnings up sharply on a year earlier. A, annual earnings growth over several years. N, something new: a product, management or a new price high. S, supply and demand for the shares. L, leader or laggard. I, institutional sponsorship. M, market direction.
What is a follow-through day?
O'Neil's signal that a market correction may be over: a day, usually from the fourth day of a rally attempt onward, when a major index closes up strongly on volume higher than the day before. It doesn't guarantee a new uptrend, but he said no new bull market started without one.
What is O'Neil's 7% to 8% rule?
His rule for losses: sell any stock that falls 7% to 8% below what you paid, without exception. Small losses can be recovered; large ones can't, and the rule keeps one bad pick from doing real damage.
Is CAN SLIM still used today?
Yes. Investor's Business Daily still publishes it, and many growth investors use its letters as a checklist even when they trade their own way. Its core, growing earnings plus a stock that is already acting like a leader, is shared by most momentum methods.