Frequently Asked Questions
My model is based on my statistical studies of how the major stock market averages actually behave on a price/volume basis going back many decades. My model is largely responsible for my KPMG verified long term track record and has kept me on the right side of the markets since 1991. The model is not a black box in that it integrates many variables (price/volume, shape of price/volume action, market indices and leadership) into a complete picture. I continued to refine the model as my ability to identify proper distribution (selling pressure) and confirmation days (buying pressure) improved, much as one would continue to refine their ability to interpret the strength or weakness of a basing pattern in a chart.
Now, the M in William O'Neil's CANSLIM stands for market direction. My research studies I started back in '91 were motivated and inspired by that. But there was a lot of confusion as to what, say, was a proper distribution day and a proper follow though day. The different variables were not defined in a way that was consistent and it created a lot of confusion.
In '91 being in grad school and being very much a quant, I started studying price volume action and created rules. My model differs somewhat from O’Neil’s system. O’Neil, for example, used to primarily want to see follow through days in the fourth to seventh days of the attempted rally; but you can sometimes get follow through days that work on the third day, or even well beyond the seventh day, as long as the price/volume action of the leading indices and leading stocks is sound.
One important aspect to my model is risk management. Whenever my model issues a buy or sell signal, it has a fail-safe built in so if the signal proves to be false, the model will go to cash.