On May 29, 2023, innovative financial author, stock speculator, and entrepreneur William O’Neil passed away at the age of 90. “BIll,” as he was known to his friends, was a real trailblazer. With the Great Depression as the backdrop to his childhood, his forays into finance began in 1958, when we worked as a stockbroker in Los Angeles.
It wasn’t long before he made his first big win, turning a $5,000 investment in Syntex Corp into over $200,000 in just a year. Not one to rest on his laurels, he founded William O’Neil + Company, launching a mutual fund that yielded an impressive 115% return in 1967. He invested an unprecedented $2 million in R&D, creating a database detailing stock movements dating back to the 1880s.
In 1984, he launched Investor’s Business Daily, which quickly became a go-to resource for individual investors. It’s also around this time when he introduced his innovative approach to investing, also known as CAN SLIM, through several best-selling books, including “How To Make Money In Stocks: A Winning System In Good Times Or Bad.
William O’Neil’s CAN SLIM strategy revolutionized individual investing.
The CAN SLIM approach focuses on current earnings growth, new products, supply and demand, market leadership, institutional sponsorship, and market direction. While originally designed for stocks, this article explores how the CAN SLIM principles can be adapted for the futures market, providing a valuable tool for futures traders.
Explaining O’Neil’s CAN SLIM Approach
The key elements to the CAN SLIM strategy are:
- C: Current quarterly earnings per share has increased sharply from the same quarters’ earnings reported in the prior year.
- A: Annual earnings increase at a compound rate of no less than 25%.
- N: New products, new management, and new highs.
- S: Supply and demand. Stocks with small floats experience greater price rises, plus big volume demand.
- L: Leader or laggard? Purchase leading over laggard stocks.
- I: Institutional sponsorship should be increasing, not decreasing.
- M: Market direction; how the market is doing overall.
As a futures trader, you’ll notice immediately that this system wasn’t really developed with futures or commodities in mind. So, to transfer the concepts to the domain of futures trading, you’ll have to be slightly creative. And that’s what we’re going to attempt to do next.
Using CAN SLIM in the Futures Market
Now comes the exciting part. Let’s see how we can apply CANSLIM principles to the futures market. Remember, futures are not stocks, and they come with their own characteristics, idiosyncrasies, and risks.
- C in our futures-friendly CANSLIM could stand for “Current market conditions,” which refers to the prevailing economic and geopolitical climate impacting the futures contracts you’re interested in.
- A, or Annual Growth, could refer to the underlying commodity or financial instrument. For instance, if we’re talking about a commodity like wheat, we could look at annual growth or decline in production levels.
- N still stands for New – but this time, it could be new legislation, new trade agreements, new uses for the commodity, or anything that could significantly affect the price of the underlying asset.
- S, for Supply and Demand, still holds. However, keep in mind that in futures, this can be influenced by a wider range of factors, from weather conditions to political instability.
- L, Leader or Laggard, in the futures context, could mean focusing on the contracts that are leading in terms of volume and volatility, or showing lagging performance that indicates a potential turnaround.
- I for Institutional Sponsorship could refer to large traders’ positions as reported in the Commitment of Traders report, which might indicate the market’s direction.
- M, for Market Direction, in the futures market, it is essential to understand the overall trend of the specific future contract and the broader market.
Remember, these are just starting points. The beauty of CANSLIM is in its flexibility. Feel free to tweak and adjust to suit your trading style and objectives.
The Future of CANSLIM in the Futures Market
And there you have it: a beginner’s guide to adapting CANSLIM for the futures market. It’s an intriguing proposition that could potentially add another tool to your trading toolbox. As always, we encourage you to experiment, backtest, and find what works best for you. After all, in the realm of trading, adaptation is the key to survival.
A Few More Things to Think About
For those interested in delving deeper into the CANSLIM strategy, O’Neil’s book, “How to Make Money in Stocks,” is a great place to start. For more on futures trading, the CME Group’s educational resources are a treasure trove of valuable information.
Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations. There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.