Since you use such a restrictive selection process, do you have a high percentage of winning trades? I guess over the years, about two-thirds of my stock purchases were actually closed at a profit. However, I
have found that only one or two stocks of every ten I have bought have turned out to be truly outstanding.
Wouldn't most of the indicators in your CANSLIM formula, such as EPS, pick up a stock before it goes to new highs? Why not just buy the stock when it is still forming a base instead of waiting for it to go to a new high? You don't want to anticipate a breakout from a base because a stock may never break out. You can buy too
soon as well as too late. The idea is to buy when there is the least probability of a loss. If you buy within the base,
the stock will frequently fluctuate 10 or 15 percent in normal trading action, and it is very easy to get shaken out of
the position. But if I buy at exactly the right time, the stock is usually not going to go down to my maximum 7
percent stop-loss point.
You have stated that the superior stocks have high relative strength figures—80 or higher. Although high relative strength is good, is there such a thing as it being too high? In other words, might a relative strength of 99 indicate that the stock is overextended and vulnerable to a sharp correction? You have to look at a chart to make that determination. The key point is not how high the relative strength is,
but rather how far the stock is extended beyond its most recent price base. You buy stocks that have a high relative
strength if they are just beginning to emerge from a sound base-building period. However, I would generally not buy
a stock with a high relative strength that is already more than 10 percent beyond its prior price base.
The "M" in the CANSLIM formula makes sense since few stocks can buck a general bear market.
