Bill O'Neil is the founder of IBD, Investor's Business Daily.
In this book he outlines his CANSLIM methodology for investing in stocks. He covers the main fundamentals and technical patterns ("bases") he looks for in a stock. These include cup with handle, double bottom, flat base, etc.
The book also covers O'Neil's background and how & why he founded the paper.
This is a "must read" for all investors, imho.
The lastest edition is the 3rd. Here is the Amazon link for the book.
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John Boiks Book Monster stocks is one of the easiest to understand expalaining the IBD methodology.he cover sever stock in many of the Bull markets of the 20th century. He includes many datiled Historic chart and doesn't just rely on the late 1990's bull run like many of the other books on the market.
Boik explains real traders who rode those stocks to great gains and what guided their decision making process
How Markets Really Work" (book review)
Earlier today I (Bill Cra) wrote that trading is about numbers,
not fashion. Since you don't create fashion, sell it
or end it, you are at a disadvantage if you trade by
following it. If you do; you will always buy high and
sell low. Rather, I have always said, you need to
understand that your edge is in the numbers.
Larry Connors and Conor Sen, of the well-known
California independent investment firm called Connors
Research Group, has published the proof of concept.
Their book is called: How Markets Really Work " A
Quantitative Guide to Stock Market Behavior" (2004)
US$49.95 at Amazon.
By testing 15 years of trading data, Connors Research
proves that successful trading involves buying into
weakness and selling into strength.
In their words: These conclusions were confirmed many
different ways, by comparing multiple-days' highs to
multiple-days' lows; comparing multiple days of the
market rising to multiple days of the market
declining; comparing multiple days of the markets
rising higher intra-day to declining lower intra-day;
looking at the days when the market rose strongly to
the days it declined sharply; studying days when
advancing issues were much stronger than declining
issues; looking at the put/call ratio, and studying
the effects of prices when VIX stretched to extremes.
The test results, many using over 3,500 days of
trading, all point us in the same direction—it has
been smarter, wiser, and more profitable to be buying
weakness and selling strength in stocks, than vice
versa."
So Connors proved it; I have been saying it. Moreover,
how many times have readers been shocked when I would
recommend a sell on say SNDK (a company I really like)
after a strong run up in stock price, or a buy on the
golds and the oils after extreme market weakness that
existed in the first two weeks of May-05.
You know of course that (i) I am not bigger than
capital markets where I can just wave a Wizard's broom
to achieve success soon after, and (ii) I am not
rolling dice or flipping coins. But I am here to say
that precisely what Connors has published (i.e., the
mathematical data) is what I have known for many
years.
To some of you, this revelation is more than a mild
shock. Some of you have actually started to follow my
blog to try to understand the discipline. Well the
Connors book might be a place to start.
Before you do, I want to say that this is not a wordy
text. It makes very few statements, but then backs
them up with proof. So if you happen to be somebody
who needs convincing, go buy the book.
I see that Connors also offers a costlier service
called Special Reports, which they make available at
$200 each or three for $500. You can find further info
at www.TradersGalleria.com.
Report #1: Applying this knowledge to SPY, QQQ and SMH
Report #2: Applying this knowledge to the Options
Market
Report #3: Applying this knowledge to the E-mini
market
After I test the Connors system on options and ETF's,
I'll write up a subsequent report.
Back to this book, here are some nuggets I jotted down
as I went through it:
1. "Prudent money management and portfolio management
(risk control and position size) is a must. In fact,
they may be as important if not more important as any
trading strategy."
2. "If you believe that markets move from overbought
to oversold, and oversold to overbought, you will want
to structure your entire thought process around this.
This means looking to be buying the times when the
market has had a statistical edge to the long side and
looking to exit when the edge is exhausted. This is
especially true in bull markets, meaning markets that
are trading above their 200-day moving average. And,
if you short stocks, you should be looking to be a
seller when the market has shown strength, especially
when it's trading below its 200-day moving average."
3. "Having multiple signals indicating the same thing
will likely improve the performance of many of the
indicators. We gave you the results of indicators as
they stood alone. We encourage you to use them in
combination."
4. "Corporate fundamental analysis may improve results
but what has always been interesting to us is the fact
that fundamentals are probably one of the easiest
areas to test, as the information is vast. Yet in
spite of the fact that Wall Street research (both from
the brokerage firms and the independent research
firms) is overwhelmingly fundamentally driven, there
still remains today little quantified evidence that
their research actually has a statistical edge."
5. "Once again, the stock market moves from overbought
to oversold and vice versa, over and over again. The
statistics prove this out. It's happened in one way or
another for the past 100 years and in our opinion, it
will happen for the next 100 years. The key from here
is to "properly identify" when the market really is
overbought and when it really is oversold. Hopefully,
this book solidifies the process of getting you
there."
In my view, this book is better suited to academia
than say Random Walk Theory of Prof. Burton Malkiel,
which was (is) a piece of nonsense I dismissed
immediately after I read it many years ago. This book
is based in mathematical research. Traders can get
their heads around this material.
But if you're looking for an Art Laffer or Larry
Kudlow piece of blather, this book is not for you. It
doesn't tell a story; it is the story. It is how
markets really work.
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