Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Wednesday, October 11, 2006

Can CANSLIM be Programmed?

What exactly is CANSLIM? And can it be mechanically programmed?

Here is the brief definition from their website:

C= Current earnings per share should be up 25% or more and in many cases accelerating in recent quarters. Quarterly sales should also be up 25% or more or accelerating over prior quarters.

A= Annual earnings should be up 25% or more in each of the last three years. Annual return on equity should be 17% or more.

N= A company should have a new product or service that's fueling earnings growth. The stock should be emerging from a proper chart pattern and about to make a new high in price.

S= Supply and demand. Shares outstanding can be large or small, but trading volume should be big as the stock price increases.

L= Leader or laggard? Buy the leading stock in a leading industry. A stock's Relative Price Strength Rating should be 80 or higher.

I= Institutional sponsorship should be increasing. Invest in stocks showing increasing ownership by mutual funds in recent quarters. IBD's Accumulation/Distribution Rating gauges mutual fund activity in a stock.

M= The market indexes, the Dow, S&P 500 and Nasdaq, should be in a confirmed up trend since three out of four stocks follow the market's overall trend.




So, can this be programmed? Sure it can but I would urge some changes to fit exactly what you are looking for! Here is how I would simply break CANSLIM down to enter it into a mechanical system:

C= quarterly earnings 25%+ versus last quarter, sales should also be up 25%+ versus last quarter
A= Annual earnings 25%+ for three consecutive years, ROE must be 17%+
N= within 15% of new high
S= minimum daily trading volume is set to 40,000 shares*
L= RS rating of 80+
I= Increased institutional support along with net positive shares**
M= NH-NL ratio must be positive for longs (my criteria)

This can be programmed (of course itis still simplified)!

*Volume should exceed 150% average volume on breakout days and strong accumulation days (up-days)

**Just because more institutions own the stock doesn't mean that the net number of shares bought versus sold was positive! Criteria can be set for this level (maybe you want an increase by 5% or 10%)

Piranha

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1 Comments:

At 4:47 PM, Anonymous bluebird said...

Hi

Fist of all, Great blog. I am from Croatia and I am using canslim for trading. I am also a software engineer and I am thinking how to turn canslim into a mechanical system for a while. If we agree that mechanical system is something that can by programmed with computer to give buy or sell signals base on the input then I thing that in your post you discuss only “fundamental” part of the canslim methodology which is, in my opinion, much easer to turn to mechanical system then technical part. How I see it, the hardest part is how to write a program that can calculate a correct pivot point from the charts that have a tradable patterns on it.

I know that Thomas Bulkowski write some trading patterns recognition software (http://mysite.verizon.net/resppzq7/index.html) but I do not know is it good enough to us it in mechanical system. I also found one site which use software to find the chart patterns but the quality of patterns which was listed was very low last time I check the site (sorry, I can find the link any more).

 

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