QMA CANSLIM — Leader Breakout and Follow-Through Day

William O'Neil spent decades studying what stocks looked like just before big moves. From that he built the CANSLIM methodology (and Investor's Business Daily). His book How to Make Money in Stocks is among the best-selling investment titles.

This article explains what CANSLIM IS and why it makes sense — educationally, not as a current signal.

What CANSLIM means — 7 conditions

Letter	Meaning	What the model descriptively tests
C	Current earnings	current-quarter earnings growth year over year
A	Annual earnings	multi-year annual earnings growth
N	New	something new: product, management, a fresh 52-week high
S	Supply/demand	fewer shares outstanding, buybacks
L	Leader	high relative strength (leader, not laggard)
I	Institutional	rising institutional ownership
M	Market	the market must be in an uptrend

Key: O'Neil argued that most big winners advance mainly in a rising market. So M is a veto — if the market isn't in an uptrend, the methodology generates no entries.

Follow-Through Day — what it is

After a significant decline, per O'Neil the market must confirm the bottom is behind us: a few days after a rally attempt, the index makes a strong up day on higher volume without having made a new low in between. That is a Follow-Through Day — a statistically watched signal of a new rally starting.

How the methodology behaved in a historical backtest (illustrative)

From one window (IBD Follow-Through Day pattern, n=805). A large sample = higher statistical reliability:

Headline alpha vs SPY: +1.3 percentage points, win rate 59 %, Profit Factor ~ 1.6

Beware: the alpha is low — CANSLIM is not a holy grail. Its value historically was not in chasing alpha but in surviving downtrends: when M=NO, the methodology is in cash. While an index loses heavily in a bear market, a cash-holding approach loses little. In the test, entries followed a break of a pivot point (cup-and-handle, flat base, double bottom) and were held until the trend broke.

Educational takeaway: a methodology that can wait

The hardest part of CANSLIM is psychological — when the market is falling, the methodology forces you to wait in cash, possibly for months. For an impatient trader that's frustrating; for a disciplined investor it is the essence of the edge (avoiding much of a bear-market drawdown).

Risks

False Follow-Through Day — the index can signal then retest the low.
Earnings miss at a leader.
Pivot-point failure.
Sector rotation.
Sudden regime change (2008, 2020).

What to take away even outside an uptrend

Even in a downtrend it's worth watching the market regime, keeping a watchlist of quality leaders with growing earnings, studying historical Follow-Through Days, and training your eye to recognise bases. CANSLIM is a methodology for investors who wait for the market, not for those who want to "always be trading something".

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⚖️ Important disclosure. QMA is an analytical and educational tool, not investment advice. This article describes a methodology and historical observations — it is not a current signal, instruction, or a solicitation to buy or sell. Any numbers shown (entries, stop-loss, targets, success rate, holding period) are illustrative and refer to a past backtest window; backtests contain survivorship bias. Past results do not guarantee future ones. Consult a licensed financial advisor before acting.

👑QMA CANSLIM — Leader Breakout and Follow-Through Day

QMA CANSLIM — Leader Breakout and Follow-Through Day

What CANSLIM means — 7 conditions

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Follow-Through Day — what it is

How the methodology behaved in a historical backtest (illustrative)

Educational takeaway: a methodology that can wait

Risks

What to take away even outside an uptrend