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William O'Neil and CAN SLIM: the rule to cut losses small

William O'Neil spent years studying the charts of the stock market's biggest winners, looking for what they had in common before they took off. He turned it into a seven-letter checklist. But the rule his readers remember best is about losing, not winning.

Story · 7-minute read · Updated 2026-10-21

Who they were

William O'Neil was born in Oklahoma City in 1933 and grew up in Texas. He earned a business degree from Southern Methodist University in 1955, then served in the US Air Force.

In 1958 he became a stockbroker at the firm Hayden, Stone. He was curious about one question: what did the best-performing stocks look like before their big moves?

What happened

Studying the winners

O'Neil began collecting charts and data on the stocks that had risen the most, going back many decades. He looked at their earnings, their price patterns, their trading volume and what the overall market was doing at the time.

He found traits that showed up again and again. Strong, growing earnings. A new product or new leadership. Big buyers stepping in. A market that was rising overall.

A firm and a newspaper

In 1963, at about 30, he started his own research firm, William O'Neil + Co. The next year he bought a seat on the New York Stock Exchange. It's often reported that he was the youngest person to do so at the time.

In April 1984 he launched a daily newspaper, Investor's Daily. It was later renamed Investor's Business Daily. It focused on data and charts for individual investors.

The checklist

In 1988 he published his best-known book, How to Make Money in Stocks. In it he laid out CAN SLIM, a checklist where each letter stands for one trait:

• C: current quarterly earnings growing strongly
• A: annual earnings growing over several years
• N: something new (a product, a manager, a new price high)
• S: supply and demand for the shares
• L: leader or laggard (favor leaders)
• I: buying by big institutions
• M: market direction (is the overall market rising?)

He also made the "cup with handle" chart pattern popular. It's a rounded dip, then a smaller dip, before a breakout. Our cup and handle guide explains it.

O'Neil died in May 2023, at 90.

The moment everyone remembers

For a man known for studying winners, his most famous rule is about losers.

In his book, he tells readers to sell any stock that falls about 7% to 8% below the price they paid. No exceptions. No waiting for it to come back.

His reasoning was simple. Small losses are easy to recover from. Big ones are not. If you always cut at 7–8%, no single mistake can do serious damage.

What it teaches

1. Decide the loss before you buy

O'Neil's 7–8% rule is a fixed exit, decided in advance. Our method is slightly different: we put the stop loss where the chart says the idea is wrong, past the last place price turned around. Then we set the size so the loss is about 1% of the account.

Both share the key idea: the exit comes first. The position size calculator works out the size from your stop.

2. Small losses are easier to come back from

The math explains his rule. An 8% loss needs about a 9% gain to get back to even. A 50% loss needs 100%. Try it in the loss recovery calculator.

3. A checklist beats a hunch

CAN SLIM is a checklist. Each letter is one question you answer before buying. That turns a gut feeling into a set of checks. Our pre-trade checklist does the same job for a trade.

4. Check the big picture first

The "M" in CAN SLIM means: look at the whole market before the single stock. It's the same idea as reading the bigger chart before the smaller one. See multiple timeframe analysis.

What it doesn't mean

It doesn't mean CAN SLIM picks winners. O'Neil studied stocks that had already gone up a lot. Many stocks with the same traits never took off. Looking back at winners only is a form of survivorship bias.

It doesn't mean a 7–8% stop is right for every market. Some markets swing more than others in a normal day. That's why we set the stop from the chart and the size from the stop.

And his book title promises more than any method can. No checklist guarantees gains. What carries over is the discipline: a fixed loss rule, a checklist and the big picture first.

Timeline

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