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Learn the CANSLIM Trading Method from Richard Moglen, Ep #56

by | Apr 15, 2021 | Podcast | 0 comments

Richard Moglen CANSLIM

Richard Moglen CANSLIM

Richard Moglen started trading after taking an introductory class on technical analysis in the stock market. It was a crash course into the CANSLIM investing methodology developed by William O’Neill. O’Neill studied the greatest winning stocks and boiled them down to their characteristics, which is now called CANSLIM.

Richard started his YouTube channel (The Market Chat) to share what he’s learned with others. His goal isn’t just to talk about winning trades with the CANSLIM method but to increase financial literacy among younger generations. Listen to this episode to learn more about his trading method!

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You’ll want to hear this episode if you are interested in…

  • [1:22] How Richard got started trading
  • [4:00] From simulated trading to the real deal
  • [6:05] The CANSLIM methodology
  • [9:09] How Richard handled COVID
  • [10:30] How to find accumulation
  • [14:50] Richard’s two-year trading journey
  • [16:36] How do you know when the money is rotating?
  • [19:40] More about TraderLion
  • [22:35] Richard’s plan for the future

The CANSLIM method

Each letter of CANSLIM stands for a different characteristic that William O’Neill would look for in a potential big winning stock.

  • Current quarterly earnings: He’s looking for earnings growth in the most recent quarter and comparing it to the same quarter one year earlier. What is the growth of the company? He looks for at least 25% growth.
  • Annual earnings: You want to see consistent growth in annual earnings. Institutions and large funds look for consistency and acceleration in earnings.
  • New: Is there a new price high, new product or service, or new CEO? What has changed that can drive innovation and growth?
  • Supply and demand: Is the chart right? Are there signs of accumulation by large funds? They are in control of 70% of trading volume, which leads to large price increases.
  • Leading group: You want the stock to be a leader in its industry group. You want the group to be leading in the market (i.e. Zoom was the leading stock in a leading group in 2020, as was Amazon).
  • Institutional sponsorship: Are increasing numbers of funds investing quarter over quarter? Are they quality? What are their track records?
  • Market conditions: Is the market right to be investing? You want to invest in the strongest stocks when the market is strong in an uptrend. Keep yourself minimally exposed.

How to handle market conditions with CANSLIM

Richard always sets stop losses. As the positions work for him, he moves the stop loss. He was starting to hit all of his stop losses in February of 2020. By following his rules, honoring the key moving averages, identifying distribution in the leaders, and getting stopped out, he was minimally exposed. He sat on the sideline during the volatile action.

He waited for a turnaround signal—what he calls the follow-through day. A follow-through day is when the index (NASDAQ composite or SDX) gains 1.5% of increasing volume versus the previous day. That happened on the NASDAQ on April 6th, so Richard got started again.

How do you handle market conditions following the CANSLIM methodology? @RichardMoglen shares more in this episode of How To Trade It! #stocks #stock #trading #DayTrading #StockMarket #Investing #StockPicks Click To Tweet

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How to find accumulation

How do you know what hedge funds are buying? How do you know how much they’re buying and where the accumulation is happening? Richard emphasizes that everything is a matter of probabilities. Accumulation can show up in price and volume action. For example, large earnings gap-ups on enormous volume corresponds to large funds putting in positions in that stock.

A stock being above key moving averages such as the 21 exponential, the 10 simple, and the 50 simple also shows accumulation. He also looks at the volume. Is the volume greater than any drops or consolidations? That’s a positive sign that the big money is happening on the upside.

Richard’s two-year trading journey

In 2020 Richard did 89%. There were so many stocks that fit the CANSLIM molds. He was able to jump into movements on TESLA, Neo, Livongo, etc. and make some decent profits in 2020. As long as you protected yourself from the downside and set yourself up that financial capital would be intact, you could make decent profits.

2021 has been up and down. He’s up 11% in one account and 6% in the other. It’s been choppy. You want to be invested when things are working for you. When you’re getting stopped out, you pull back and question the market. People make profits and then the conditions change. You have to be disciplined and when things change you must protect your mental and financial capital with your rules.

How do you know when the money is rotating?

Richard points out that during a healthy bull market there will be a couple leading groups (like eCommerce and computer software in 2020) that money will rotate between. In 2021, Richard notes that leading groups are cyclical—financial stocks, miners—and fewer traditional stocks. Richard is sitting on his hands and waiting for the gross to get back in. The miners are usually a laggard group because they aren’t innovating or growing. Recovery plays have already grown 50+%. He’s focusing on the gross stocks.

Richard recently joined the TraderLion team, a comprehensive mentorship platform. Learn more about them by listening to the whole episode!

How do you know when money is rotating? @RichardMoglen shares more in this episode of How To Trade It! #stocks #stock #trading #DayTrading #StockMarket #Investing #StockPicks Click To Tweet

Resources & People Mentioned

Connect with Richard Moglen

Connect With Casey Stubbs

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Disclaimer: Trading carries a high level of risk, and may not be suitable for all investors. Before deciding to invest you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment. Therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

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