Introduction to Alternative CAN SLIM Strategies
When searching for potential stock investments, adhering to the CAN SLIM criteria is a well-established approach. However, what happens when the market isn’t presenting the classic ‘cup with handle’ or ‘double bottom’ patterns? For traders focused on these methods, this can pose a challenge. But fear not, as there are alternative strategies that can be employed when these ideal patterns are scarce.
The Challenge: When Ideal Patterns are Absent
In an uptrend market, while occurrences of these patterns do happen, there are times when they are hard to find. This raises a crucial question: What should you do if you’ve missed a good opportunity or if the market isn’t presenting ideal CAN SLIM patterns?
A Supplementary Strategy: The EMA-21 Line
One effective method when traditional patterns are absent is focusing on the EMA-21 line. EMA stands for Exponential Moving Average, and ’21’ signifies a 21-day period. This pattern is more frequent than the classic ‘cup with handle’ or ‘double bottom’ and is useful for adding to an existing position.
Implementing the EMA-21 Strategy
The strategy is straightforward: buy stocks that are close to, or just breaking above, the EMA-21 line. You should then place a stop-loss order below the EMA-21 line (typically in the 3-5% range) and set a profit target 2 to 3 times higher than the stop-loss (e.g., 9-15% above the buying price).
Example in Action
Imagine a stock in a strong uptrend, with the price hovering near the EMA-21 line. For instance, if you buy a stock at $33.97, place a stop-loss at $32.95 (just below the EMA-21 line), and set a profit target at $37.03. Then, your role becomes one of patience, monitoring the market’s movements.
Adjustments and Considerations
Keep in mind that this strategy, while frequent, is not as reliable as the classic patterns. Hence, it’s advisable not to buy a full position right away. Additionally, if you choose to widen your stop-loss, you should proportionally adjust your profit target.
CAN SLIM Stock Ideas for EMA-21 Strategy
While not all these stocks are perfect CAN SLIM candidates, they are worth considering for the EMA-21 strategy: MHO, FOR, PHM, GFF, IBP, KNF, TOL. Remember, some may lack certain CAN SLIM criteria like EPS
or sales growth, so it’s important to manage risk accordingly. For example, if a stock isn’t a strong CAN SLIM candidate, consider risking a smaller portion of your portfolio.
Managing Risks and Expectations
It’s important to note that with tighter stop-losses, there’s a higher likelihood of your stocks being sold automatically. This doesn’t necessarily indicate a failing company or a stock plummeting to zero; it may simply be a case of poor timing. Therefore, keeping previously traded stocks on your radar for future opportunities is a wise strategy.
Decision Making at Profit Targets
Reaching your profit target presents another decision: to sell or not to sell. While you can set a limit order (LMT) at your profit target for automatic selling, it’s not a mandatory action. Based on both experience and theoretical knowledge, it’s often prudent to sell stocks that have shown strong profits. Stocks tend to plateau or decline after significant gains, and exiting at this point can be beneficial.
The Role of Emotions in Trading
An often-overlooked aspect of stock trading is the emotional connection that can develop with long-held stocks. Emotional attachment is a significant adversary in the stock market. Remaining objective and making decisions based on strategy rather than sentiment is crucial for long-term success.
Conclusion: Embracing Flexibility and Continuous Learning
In summary, while the CAN SLIM methodology is a powerful tool for stock selection, being adaptable and having alternative strategies like the EMA-21 line is essential. Stock markets are dynamic, and what works today might not be as effective tomorrow. By continuously learning and adapting your strategies, you can stay ahead in the ever-evolving world of stock trading. Remember, every trade, whether successful or not, adds valuable experience to your investing journey.
