Here's how I use CANSLIM. Since it's a bear or sideways market, you can almost assume all breakouts are fake. Some are caused by people like me. I do daily scans on the best CANSLIM candidates. You'd be surprised at how much hot money is just waiting to buy. It's funny, if the breakout is 20, at 19.8, there are no buyers, at 20.3, the world wants in long. I do my daily scan, I look for stocks with under 300k in daily volume. If you work, and wait for the right day (up day) and right chart (tight pennants, clean breaks at whole numbers) you can acutally buy 20-30k shares just under the breakout. Then you work the stock up. Flash some fatty bids. Some large fund will start to pay up. They always do. Just hijack their bids, work it, make em think that there's someone else large in the mix. This will also get the CANSLIM crowd to pay up, which is what the large mutual wants to avoid. Say that there's a 50k offer at 20 flat that is top cover. You can count on at least 2 other guys wanting that whole piece, but they're hoping to bid under it and use it for cover. If you eat out 10-20k at once, someone will take the rest. Then you're off to the races. Team IB/CANSLIM, will always take the stock from me. If I work it right and nurse it higher, I usually won't start to sell until 20.3-20.5 . Say I get 40k net shares at 19.85 avg. I might let 5k go at .4 avg, then 10k go at .5 avg. The point is that you don't want to stall it out too soon. Make em pay up. Try to get liquid so that you can support it, but at the same time, the higher you can work it, the more pullback room that exists for you to sell into. Once it gets top heavy, wait for the bids on openbook and just play whack a mole. They'll always buy the retrace to the breakout. They've been taught that. Just be patient and let it pull in. Don't flash on the offer much. Ignore the small stuff. Keep hitting the large stuff. You'll probably be able to get out of all by the time it retraces to 20.2ish. Sometimes I hold a few k and hope that there's second wind. Usually though, if I know I was the breakout, then there's no reason to expect second wind. Very few people will stand in the way of a clean break, so you have all the liquidity to sell into. I don't recommend shorting though (but sometimes I do it). Best ones to short are when there's not even enough mo-mo to clear your prebreak position out. Then you know that the hot money will stop out... Just pressure it under an obvious breakdown point and let them all bail. Once again, no one will step into the void for liquidity, so sometimes you might get over a buck in stop out slippage that you can cover into. I am sorry to tell all you CANSLIMMERS about this, but this is why most breakouts aren't working. If I am doing this on the thinner issues, I'm sure that bigger pockets are playing the same game on the bigger caps.
One more thing... If you broke it out, then you have control, and you know more than anyone else out there, even the floor guys. Don't give up that control. keep them off balance.
prae - excellent post...are you talking about NYSE stocks? and, what is your stop based on; lower band of the range it breaks out of? when i was younger and stupider - or what we know as the bull market, this time being around 97/98 - i'd buy in advance of breakouts (even options) and sit and watch it ride. buy every pullback, buy every breakout...that was fun.
I am talking about NYSE there, but it's the same in nasd. In fact, most nas stocks are so much thinner that you can move them on much less. Most mm's won't stand in the way. My stop would just be a knowlege stop. If the thing won't go, or there's still size availible, I just bail and wait til it's cleaner. The stop to plunge it is just anything as simple as just LOD, or wherever you think that CANSLIM guys would stop out.
I use IBD and have been profitable on both long and short side. Some of my observations: 1 Most breakout fail. Better to use pullback to 50 and 200 MA 2 Once you are profitable use short duration MA. I use 4,9, 18 triple MA crossover as exit signal on profitable position along with stochastic divergence. 3 watch short interest on profitable position. The IBD stocks are very vulnerable to short attacks. You will notice the short interest increasing and then some nasty piece on street.com. Anything above 10% tighten up your stop. 4 Round number resistance. I normally use this to set exit target .
I tried the CANSLIM approach when I started trading. I personally believe CANSLIM's succses with a product of the great bull market, as well as the powerful marketing engine behind it. It's a decent approach if you are looking for longterm position trading method. I've lost money in past 2 years following CANSLIM approach and have been trying my hand at day trading.
I've read William Oneil's book, and I subscribe to the IBD; but I've never used the CANSLIM method. Not that I'm saying the system doesn't work, but I guess I'm too lazy to search trough all the stocks trying to find the set-ups. I also think the IBD is not as good as it was since they quite printing the highs and lows. I only subscribe now because my wife likes to read the articles. I guess the thing I see is that if you're a long-time investor the CANSLIM method is for you, but if you're a trader, I don't think it's that beneficial.
I used it a lot in the late 90s and it worked beautifully, but then I gave up on it. When the market turns for good, it'll be one of the good ones again.