CANSLIM Strategy: How to Use RPS to Find Super Stocks
π‘ Quick Answer
CANSLIM is a growth stock investing strategy developed by William O'Neil, founder of Investor's Business Daily. It combines fundamental analysis (earnings growth) with technical analysis (price momentum). The "L" in CANSLIM stands for Leader or Laggard, which is quantified using the RPS (Relative Price Strength) indicator. O'Neil's golden rule is to only buy stocks with an RPS of 80 or higher that are breaking out of proper chart bases.
1. The 7 Pillars of CANSLIM
CANSLIM is an acronym where each letter represents a key characteristic of a winning stock before its major price advance:
- C - Current Quarterly Earnings: EPS should be up at least 25% compared to the same quarter last year.
- A - Annual Earnings Growth: Annual EPS should show meaningful growth over the last 3-5 years.
- N - New: New products, new management, new industry conditions, or a New High in price.
- S - Supply and Demand: Heavy trading volume on up days indicates institutional buying.
- L - Leader or Laggard: This is where RPS comes in. Buy the leading stocks in leading industry groups. RPS must be β₯ 80.
- I - Institutional Sponsorship: The stock should be owned by top-performing mutual funds or institutions.
- M - Market Direction: 3 out of 4 stocks follow the general market trend. Only buy during a confirmed uptrend.
2. Why the "L" (RPS) is Crucial
Many value investors find stocks with great "C" and "A" (earnings), but the stock price goes nowhere. Why? Because the market hasn't recognized them yet. The RPS indicator proves that the market is voting with real money.
β William J. O'Neil
3. Executing CANSLIM with RPS Stock
You can use the RPS Stock platform to streamline your CANSLIM workflow:
- Filter for Leaders: Go to the RPS Rankings and sort by RPS120. Filter out any stock with an RPS below 80.
- Check the Chart: Click on the stock to view its K-line chart. Look for classic O'Neil bases such as the "Cup with Handle", "Double Bottom", or "Flat Base".
- Verify the Breakout: The buy point is when the stock breaks out of its base on volume that is at least 40% above average.
- Fundamental Check: Once the technical setup (RPS + Chart) is confirmed, quickly check the company's recent earnings reports to ensure the "C" and "A" criteria are met.