How to Make Money in Stocks
The CAN SLIM System That Built Investor's Business Daily — and Why I'm Helping Bring It to Europe
Most investing books tell you to buy low and sell high.
William O’Neil’s How to Make Money in Stocks tells you the opposite: buy high, and sell higher.
That single inversion — buy strength, not weakness — made O’Neil one of the most influential market thinkers of the last 60 years. He bought his seat on the New York Stock Exchange at 30. He founded Investor’s Business Daily. And he built a system, CAN SLIM, that has been studied by more serious traders than almost any other.
I should be upfront about something: I’m an IBD partner. Investor’s Business Daily is the company O’Neil founded, and I work with them to help spread CAN SLIM and the tools around it — including MarketSurge, the chart-screening platform I use every day — across Europe. So yes, I have skin in this game. But I’d be writing about this book regardless, because it genuinely shaped how I think about market timing and momentum. Everything below is free to read, no paywall, no catch.
Let me walk you through the system that took O’Neil from a small account to a NYSE seat — and why it still works.
Who Was William O’Neil?
William J. O’Neil (1933–2023) was a stockbroker, researcher, and entrepreneur from Oklahoma. After serving in the Air Force, he started as a broker in the late 1950s and became obsessed with one question: what do the biggest winning stocks have in common before they make their big moves?
So he did something almost no one had done at the scale he did it: he studied them. Systematically. He analyzed the greatest stock market winners going back to the 1880s — hundreds of them — looking for the shared traits they displayed right before they launched.
The patterns he found became CAN SLIM. He used the system to turn a modest sum into enough to buy a seat on the New York Stock Exchange at age 30 — one of the youngest ever at the time. In 1984, he founded Investor’s Business Daily as a data-driven competitor to the Wall Street Journal, built specifically to surface the metrics CAN SLIM relies on.
His book, How to Make Money in Stocks, has sold millions of copies and remains one of the most recommended trading books in the world — featured, fittingly, in many “best investment books” lists alongside Lynch and Graham.
The Core Insight: Winners Look Expensive Before They Win
Here’s the psychological hurdle most investors never clear.
The best-performing stocks in history were almost never “cheap” before their biggest runs. They were already at new highs. They had strong earnings, leadership in their sector, and institutional money piling in. They looked expensive.
The average investor sees a stock at a new 52-week high and thinks: “I missed it. Too late.” O’Neil’s research showed the opposite — a stock making a new high on strong volume is often just getting started. What looks expensive is frequently the beginning of the move, not the end.
This is the hardest thing to internalize. It runs against every “bargain hunting” instinct we have. But the data O’Neil compiled is overwhelming: the stocks that go on to gain 100%, 300%, 1,000% don’t start from the bargain bin. They start from strength.
CAN SLIM, Letter by Letter
CAN SLIM is an acronym. Each letter is a trait O’Neil found in the biggest winners before they made their major advance. Here’s the full breakdown.
C — Current Quarterly Earnings
Look for stocks with current quarterly earnings per share up at least 25% versus the same quarter a year earlier. The biggest winners often showed even more — earnings accelerating sharply in the quarters right before their breakout.
The logic is simple: earnings drive stock prices over time. A company suddenly earning far more than it did a year ago is a company something has changed at. Acceleration matters more than the absolute number — earnings growth that’s speeding up is the signal.
A — Annual Earnings Growth
One great quarter could be a fluke. So O’Neil also wanted strong annual earnings growth — ideally 25%+ annual growth over the last three years, plus a high return on equity. The bigger and more consistent the long-term growth, the better.
C and A together form the fundamental backbone: a company growing fast right now, on top of a track record of growing fast.
N — New Product, Service, Management, or Price High
The biggest winners almost always have something new driving them: a new product, a new service, new management, a new industry trend — or the stock pushing into new price-high territory.
This is the catalyst. Innovation and game-changing products are what fuel huge moves. And paradoxically, the “new price high” itself counts — a stock breaking out to new highs is often the market’s way of pricing in a new reality before the news is obvious.
S — Supply and Demand
Price is set by supply and demand, and shares are no different. O’Neil looked for strong demand against limited supply. A surge in trading volume on an up day signals institutions accumulating. Companies buying back their own shares (reducing supply) is another plus.
This is where volume becomes critical: a breakout on heavy volume means real demand is showing up. A breakout on weak volume is suspect.
L — Leader or Laggard
In any strong industry, there are leaders and there are laggards. O’Neil’s research was blunt: buy the leaders, avoid the laggards. Find the best one or two stocks in the strongest industry groups — the ones with superior earnings and sales growth and the best relative price strength.
Most investors do the opposite. They buy the “cheap” laggard hoping it’ll catch up to the leader. It usually doesn’t. The leader leads for a reason.
I — Institutional Sponsorship
Professional investors — mutual funds, pension funds, banks — account for the vast majority of market activity. O’Neil wanted to see a stock owned by a growing number of quality institutions. You want big money buying alongside you, because their sustained demand is what drives a stock higher over months.
But there’s a nuance: you want increasing sponsorship, not a stock that’s already over-owned. The sweet spot is a stock being discovered by quality funds, not one every fund already holds.
M — Market Direction
This is the one most people ignore — and O’Neil considered it the most important. Three out of four stocks follow the overall market trend. So even a perfect CAN SLIM stock will likely struggle if the broad market is in a downtrend.
You have to know whether the general market is in an uptrend or a correction, and trade in sync with it. O’Neil developed methods of reading daily index price and volume — “distribution days” and “follow-through days” — to gauge whether the market is under accumulation or distribution. Buy when the market confirms an uptrend. Raise cash when it doesn’t.
CAN SLIM in One Paragraph
Buy a stock with accelerating current earnings (C) and strong annual earnings growth (A), driven by something new (N), with demand outstripping supply on heavy volume (S), that is the clear leader in its industry (L), being accumulated by quality institutions (I) — but only when the overall market is in a confirmed uptrend (M). Then cut every loss short, and let your winners run.
The Rule That Matters More Than Any Letter
If you take only one thing from O’Neil, take this: cut your losses at 7–8%. No exceptions.
O’Neil was ruthless about this. His research showed that the single biggest difference between investors who succeed and investors who blow up isn’t stock selection — it’s loss management. A stock that drops 8% can be recovered with a 9% gain. A stock that drops 50% needs a 100% gain just to break even.
So O’Neil’s iron rule: if a stock you bought falls 7–8% below your purchase price, you sell. Immediately. No “it’ll come back.” No averaging down. You’re wrong, you’re out, you move on. The 7–8% cut is what keeps a single bad trade from becoming a catastrophic one.
This pairs with the flip side: let your winners run. Cut losses short, hold gains long. It sounds obvious. Almost no one does it, because it’s emotionally backwards — we want to take quick profits and “give losers time.” O’Neil’s data says that instinct is exactly wrong.
My Take: Where CAN SLIM Fits — and Where It Doesn’t
I’ll be honest about the tension here.
At arvy, I’m a long-term quality investor. I buy great companies and hold them for years. CAN SLIM is a momentum-and-timing system designed for active traders who manage positions tightly. These are different sports.
So why do I love this book, and why am I helping spread CAN SLIM in Europe?
Because the underlying research is some of the best ever done on what actually drives winning stocks. Even if you never place a single CAN SLIM trade, understanding why leaders lead, why earnings acceleration matters, and why market direction dominates individual selection will make you a sharper investor. The “M” lesson alone — respect the broad market trend — has saved more portfolios than any stock pick ever made.
And there’s a European gap worth closing. CAN SLIM, IBD, and the whole O’Neil methodology are deeply embedded in the US trading culture and almost unknown to most European retail investors. The tools — like MarketSurge for chart screening — are genuinely excellent, and Europeans rarely hear about them. That’s the gap I’m working to close as an IBD partner.
Where I’d add a caveat: CAN SLIM demands real discipline and screen time. The 7–8% sell rule only works if you actually follow it, every time. For most people with a job and a family, a disciplined automated approach (the kind of thing I build at arvy) will beat a half-followed trading system. CAN SLIM rewards the committed and punishes the casual.
Three Sentences to Remember
The biggest winners look expensive before they win — strength, not bargains, is the signal.
CAN SLIM is seven traits, but one rule rules them all: cut every loss at 7–8%, no exceptions.
Three out of four stocks follow the market — so respect the trend before you trust the pick.
If this was useful: subscribe. I write deep dives like this on investing, trading systems, and the books and tools that actually move the needle — all free to read.
And if you want to explore CAN SLIM properly, the source is William O’Neil’s How to Make Money in Stocks and the data tools at Investor’s Business Daily — including MarketSurge, which I use for chart screening almost daily. As an IBD partner, my goal is simple: get more European investors exposed to a methodology that the US has known about for decades.
Next week: Stan Weinstein’s Stage Analysis — the four-stage framework that pairs beautifully with CAN SLIM, and gives you a map for when in a stock’s lifecycle to act.
Until then,
Thierry