Ask Tony
Thursday, April 5^th, 2007

by Tony Golan
Chief Technical Analyst
StockProfit.com™

Tony answers: Ossil, there are some major differences between my approach and William O'neill's CANSLIM method. Since you appear to know quite a bit about CANSLIM, I'll just point out how my method is different. First of, stocks are forward-looking instruments, and therefore their price usually starts to rally before the reason for the rally becomes evident, or in other words, stocks usually rally for awhile BEFORE the good news comes out.

Unlike CANSLIM, my method initially analyzes the trend of the major market averages first and foremost, to determine what most stocks are doing, because if most stocks are going up, then my RSD indicator will pick out the stocks that are performing best. If most stocks are going down, then it's best to sell-short stocks instead of trying to buck the trend and expect that I would somehow pick stocks that would go up while everything else is going down.

Further, CANSLIM buys stocks on breakout after consolidation patterns, which they term the "cup-and-handle pattern", then use an 8% sell-stop to minimize losses. In my experience, buying stocks that break out to new highs works best for daytrades only. Additionally, strong stocks like that often move 10% or more in a day, and when they correct they can move that much just as easily, resulting in unnecessary losses. My method waits patiently for pullbacks in these strong stocks AFTER they made a new high, then only enters after the stock turns back up.

For example, if XYZ goes from 70 to 100, then pulls back to 89, then rallies back to 92 with a bullish reversal signal, we would then enter when the stock goes above the high of the bullish reversal pattern, let's say 92.02, and then place a stop below the low the stock just made, so at 88.95. If the stock then comes back down and makes a lower low, we would be stopped out with a small loss. With the CANSLIM approach, you are betting that when the stock corrects, it will correct less than 8% and that is not realistic considering the extent of the moves in these stocks.

As far as learning technical analysis, there are two paths you can take: The first is to start an exhaustive study of books and charts. That could take years, and many people never figure it out as they can't stomach all the mistakes they have to go through to "get it". The other way is my technical analysis seminar, which cuts through all the stuff that doesn't work and gets right to what I have found to work best, limit risk and minimize losses in my 18 years of experience in the stock market. Hopefully, we will have a seminar in the summer, so keep checking the site or join my mailing list to be notified of upcoming seminars.

-Tony.

Tony Golan
Chief Technical Analyst

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