Below is a quick overview of the CANSLIM buying and screening strategy that I will use for the daily screens on chrisperruna.com
- I start by analyzing the fundamentals (accelerating earnings, sales and ROE) by using a combination of several screeners on the web to narrow down my list of quality fundamental stocks. The custom screen wizard from Investor’s Business Daily is one of my favorites.
- Next, I study the charts (technical analysis) and look at every stock screened. I pay particular attention to stocks that are poised to move and especially stocks with potential to move quickly. I am a trend-trader by nature but I have no problem making swing trades when the reward heavily outweighs the risk.
- I could never buy every stock that makes the daily screens but I try to include only stocks that look poised to make a move for those of you interested in buying certain candidates. The daily screen is just an equity research list, not an automatic buy screen.
- Finally: No investor is perfect and losses are part of the game when it comes to Wall Street. You must understand that these daily screens give us stocks that will allow me to maintain an expectancy to come out ahead each year. I will have as many winners as I do losers on these screens but I will only take the best risk-to-reward setups and will execute my game plan so the winners are consistently larger than the losers. This method is profitable if you follow the basic rules and control your emotions.
CUT ALL LOSSES QUICKLY – NO QUESTIONS ASKED!
In order for my screening method to work, the “M” in CANSLIM is the MOST important aspect to the system’s success. For those of you not familiar with CANSLIM, the M stands for market health, if the market is weak, DON’T BUY long. No matter how good the fundamentals and technicals look, stocks will have a high risk of failure during weak markets.
I don’t discriminate when a stock makes my screens; I include every qualifying stock even if I personally don’t like the company. Emotions must be tossed out the window and facts must be the only aspect analyzed, even if you don’t like the product.
My daily screens look at the current day’s action and screen for stocks that are making new 52-week highs, building solid patterns, breaking out from a pivot point or trending higher with a favorable trade setup. Stocks that have already broken out or have made past daily screens can continue to make future daily screens even if it sits above the pivot point or ideal entry area. I prefer to continuously track quality stocks as they pass crucial buy points because trending stocks typically go to make new highs or higher highs. Daily screens have the tendency to present many different stocks but only the best of these stocks will go on to make multiple lists. Stocks that make multiple lists must be looked at for trade setups.
Further Daily Screen Details:
- My screening methods have one secret that others don’t: There is no secret; therefore, anyone can succeed to build a profitable system but it’s the mind that you must learn to control (your emotions).
- I start all searches by looking for stocks with superior fundamentals based on specific criteria (typically related to a CANSLIM methodology. After fundamentals are established, look I determine if the stock trades within a strong industry group. Historically, similar stocks move in the same direction (this is fact not opinion). This is not to say that every stock in the industry group will move higher or lower because a sister stock is going in that direction (a generalization rule of course). After the industry group has been confirmed strong or weak, I then determine if the overall market is in a specific trend (up, down or sideways).
- An average night (after market data only) will give me a list of about 50-150 stocks that meet my specific fundamental criteria. These screens can return 500 to 1000 stocks per day during a strong bull market.
Key statistics to use in fundamentals:
- Earnings (current, past: quarterly, yearly and future estimates)
- Sales (current, past: quarterly, yearly and future estimates)
- Return on Equity (ROE)
- Price/Earnings Growth (PEG)
- Price/Earnings Ratio (rise over time of base)
- Assets, Liabilities
- Accumulation/Distribution ratio
- Up/Down Volume over past several months
- Number of Institutional Holders (is this increasing or decreasing recently)
Key things to use for technical analysis:
- I study the 1 year weekly chart for trends
- I study the daily chart for trade setups and exits
- Favorable risk-to-reward setups
- Properly forming bases
- Pivot points
- Breakout areas
- Extended stocks
- Stocks pulling back to key support lines
- Check volume action when bases are formed
- Use Point & Figure charts for support and resistance areas
- Resistance zones, etc…
Daily screens will become a large part of this blog staring this month so please leave feedback and I will always develop the research towards your likes and dislikes. Daily screens were one of the most popular tools I used on MSW and I have no doubt they will become very popular on the blog. Maybe tomorrow will feature the first daily screen…