How to Make Money in Stocks Summary: William O’Neil’s CAN SLIM Rules
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The seven letters O’Neil drew from a century of big winners, the 7% to 8% loss rule that protects them, and when he takes profits
Published: 17 October 2026 · Last updated: 17 October 2026 · By Spencer Li, CFTe
What is How to Make Money in Stocks about? William O’Neil’s book sets out one system for buying growth stocks, called CAN SLIM, and the selling rules that make it work. He built it by studying the biggest stock market winners of each year and asking what they looked like just before they ran.
The answer fits in seven letters. Buy companies with surging current and annual earnings, something new, and strong demand for their shares. Buy the leader in its group, owned by good funds, in a rising market. Then cut every loss at 7% or 8% below your cost, with no exceptions. This summary walks through each letter, the loss and profit rules, and where the evidence is weaker than the book admits.
Who is William O’Neil?
William J. O’Neil founded the research firm William O’Neil + Co. and the newspaper Investor’s Business Daily. He started small, with five shares of Procter & Gamble, and says the book “isn’t written for the elite.” It is written for ordinary savers who want a set of rules they can follow.
The edition summarised here is the fourth, published by McGraw-Hill in 2009. It opens on the market falls of 2000 and 2008.
What is the overview of the book?
The book has two main parts. Part I is about buying: a chapter on chart bases, then one chapter for each of the seven CAN SLIM letters. Part II is about being smart from the start: cutting losses, selling on the way up, money management and the 21 most common mistakes. Later chapters cover industry groups, reading the news and mutual funds.
The evidence is a long study. O’Neil’s firm took the greatest winner of each year across 125 years and charted what each looked like before its big move. His core belief is that the market is “human nature and crowd psychology on daily display.” Because human nature does not change, he argues the same price patterns keep coming back.
One caution before the rules. The study looks at winners chosen after the fact. It shows what the big winners looked like, but not how many stocks looked the same and then failed.
What does CAN SLIM stand for?
Each letter is a test. A stock has to pass all seven.
| Letter | What it means | The book’s number |
| C: current quarterly earnings | Latest quarter’s earnings per share up sharply on the same quarter a year ago | At least 25% to 50%. “A mediocre 10% or 12% isn’t enough.” |
| A: annual earnings | Earnings up in each of the last three years | 25% or more a year, with return on equity of 17% or more |
| N: something new | A new product, new management or new industry conditions, and a new price high off a sound base | Over 95% of the winners had something new |
| S: supply and demand | Fewer shares on offer, and big buying at the breakout | Breakout volume at least 40% to 50% above normal |
| L: leader or laggard | Buy the number one stock in a leading group | Relative strength of 80 or higher |
| I: institutional sponsorship | A rising number of good funds owning the stock | At least one or two top-performing funds |
| M: market direction | The general market must be in an uptrend | Read the index price and volume every day |
O’Neil calls the change in earnings per share “the single most important element in stock selection today.” He says only about 2% of stocks show earnings growth that strong at any one time. So C alone throws out most of the market. On estimates he is just as firm: “Actual reported earnings are facts.”
How does CAN SLIM work as a system?
It helps to see the seven letters as three jobs.
- Filter. C, A, N, S, L and I narrow the market down to a handful of leading companies with real earnings.
- Time. The new high off a sound base, and the M, decide when to buy. A good stock bought at the wrong moment still fails.
- Cut. The loss rule decides when you were wrong, and it never bends.
The timing job is the one most readers skip. O’Neil is blunt about M. Get the other six letters right in a falling market, and “three out of four of your stocks will plummet” with it.
Why does O’Neil buy stocks near their highs?
This is the part that feels wrong to most new investors. O’Neil calls it the Great Paradox: “What seems too high in price and risky to the majority usually goes higher eventually, and what seems low and cheap usually goes lower.”
So he buys a stock as it breaks to a new high out of a base, a stretch of sideways trading that lasts from seven or eight weeks to over a year. His favourite base is the cup with handle, which we break down in our guide to the cup and handle pattern. The buy is at the breakout, and no more than 5% to 10% past it, because a stock that has run further is likely to pull back and shake you out. As he puts it: “There’s a right time, and then there are all the other times.”
The same thinking makes him wary of cheap shares. “I prefer not to buy any common stock that sells for below $15 per share,” he writes, because most of his super winners broke out of bases between $30 and $50.
What is O’Neil’s 7% to 8% stop-loss rule?
Cut every loss when a stock falls 7% or 8% below what you paid. He calls it “an absolute maximum.” The reason is his own hit rate: “only one or two out of ten stocks that I’ve bought turned out to be truly outstanding.” The other eight have to be kept small, or they eat the winners.
Three details matter.
- It runs from your cost, not the peak. “Do not sell a stock just because it’s off 7% to 8% from its peak price.” Once you are well ahead, a normal pullback is not a sell.
- It caps your real risk. Follow it and, in his words, “It’s 8%, no matter what you buy.”
- It stops the big loss early. “Every 50% loss began as a 10% or 20% loss.”
His summary is an old line: “take your losses quickly and your profits slowly.” I came to the same place in what I learnt in 15 years of trading. Once I accepted that half my trades would lose, a single loss stopped feeling like a verdict on me.
When does O’Neil take profits?
He found that most winners, after breaking out of a proper base, “tend to move up 20% to 25%” and then pull back to build a new base. So the plain rule is to take most gains at 20% to 25%, while the stock is still rising. “If you don’t sell early, you’ll be late.”
There is one big exception. If a stock jumps 20% in only one to three weeks after the breakout, hold it for at least eight weeks. Those are the ones that can become the big winners.
Put the two rules together and you get a ratio of about three to one between the profit target and the loss cut. O’Neil says winning comes from losing “the least amount possible” when you are wrong, not from being right all the time.
How many stocks should you own?
Fewer than most people think. “Wide diversification is a substitute for lack of knowledge,” he writes. He sets the number by account size, from two stocks in a small account to four or five in a mid-sized one, and six or seven even past a million dollars. If you want a sixth stock, sell the weakest of your five first.
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Concluding thoughts
How to Make Money in Stocks is one of the few investing books that gives you numbers rather than opinions. Its best lesson is not a letter in CAN SLIM. It is the loss rule, and the idea that you will be wrong most of the time and can still do well.
O’Neil ends Part II with 21 mistakes, and the first behind them all: “By far the greatest mistake that 98% of all investors make” is never studying where their own buys and sells went wrong.
For his best one-liners, see our post on William O’Neil’s best trading tips and quotes. The book also sits on my reading list and in our guide to the best investing and trading books of all time.
So pick your last losing trade. How far did it fall below your cost before you sold it?
FAQ
What is the CAN SLIM method?
William O’Neil’s seven-part test for growth stocks: current earnings, annual earnings, something new, supply and demand, leader, institutional sponsorship and market direction.
What is O’Neil’s 7% to 8% rule?
Sell any stock that falls 7% or 8% below the price you paid, with no exceptions. The rule is measured from your cost, not from the stock’s peak.
Does O’Neil recommend buying stocks at new highs?
Yes, when the stock is breaking out of a sound base in a rising market. He avoids buying more than 5% to 10% past the breakout point.
When does CAN SLIM say to take profits?
Most gains at 20% to 25%. If a stock rises 20% within three weeks of breaking out, hold it for at least eight weeks.
Go deeper
O’Neil’s rules work because they are written down before the trade. The free 15-Minute Swing Trader’s Checklist does the same for swing traders: the daily scan, the questions to ask before you enter, and the five rules that keep you in the game. Enter your email and we’ll send it over:
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About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public: every trade since April 2024, dated, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.
Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.
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Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.
