I received the following query from a Trade2Win member the other day.
I was just re-reading the example strategy part of your book. I know you said it is inspired from CANSLIM. O’Neill generally advises staying out of the market if it is in a bear trend. Do you generally find this affects your strategy. Do you have to leave it for another or do you find it still works fine possibly with less candidates?
My personal experience with stock trading in general, and CANSLIM-related strategies in specific, is that the overall trend of the market is a major influence on the performance of most individual stocks. I think most experienced traders would back me up on this. Also, there’s been a lot of talk lately about how much more correlated individual stocks have become to the indices of late, so it would seem these days the O’Neill suggestion should be taken even more seriously.
While it’s certainly true that strong stocks will tend to outperform the market no matter the overall conditions, there’s an aspect to CANSLIM which needs to be accounted for here. The stocks identified tend to be high beta names, meaning they tend move move more aggressively than the overall market. That’s great when the market is rallying, but it can be a killer when the market’s moving the other way.