Anyone can learn how to make money in the stock market, but the secret to successful investing requires a comprehensive trading strategy. In this beginner’s guide to the stock market, we’re going to reveal the missing ingredients on how to make money in the stock market fast.
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There are many innovative methods you can learn about how to make money in the stock market for beginners. Stock trading guru William J O’Neil has developed an innovative method known to the general public as the CANSLIM formula to help them build wealth.
As bestselling author William O’Neil published in 1988, the notorious How to Make Money in Stocks book sold more than 2 million copies worldwide. William O’Neil studied the performance of stocks in the last 125 years to come up with a comprehensive trading strategy to make money in the stock market.
The main takeaways from his book can be summarized into three factors:
- Stock chart reading
If one can master these three components of trading, they will have better chances of becoming a profitable stock trader.
Before revealing the CANSLIM investing system, we’re going to teach you how to make money in the stock market for beginners.
How to Make Money in the Stock Market for Beginners
In the world of the stock market, there are two ways to make money:
When you buy stocks in a company you become a part-owner of that company. As a part-owner of that company, you are entitled to a share of the profits the company produces. Companies will pay out part of their profits to the shareholders in the form of dividends. With dividends, you can accumulate wealth without needing to exit any of your positions.
Let’s say, for example, we have a company that pays $1 dividend per share and you own 1000 shares. You are going to receive $1,000 every single year, for as long as you own those shares and as long as the company continues to pay dividends.
If the stock doesn’t have dividends then how does a stock make you money?
The answer, in trading lingo, would be a growth stock. The term is self-explanatory. You want a stock to grow in price and its market value to increase over time. For example, if you buy ABC stock for $5 per share, as time goes by, you want the ABC stock to be more than $5 per share to make a profit. The more the stock is able to grow, the larger your profits will be.
Also, learn about the rules of the stock day trading game with our Day Trading Rules Under 25k Guide.
Contrary to conventional wisdom, you don’t need deep pockets to invest in the stock market.
But, let’s see how much money do you need to start investing in stocks.
How Much Money Do You Need to Invest in Stocks
Pragmatically speaking and depending on how much risk you’re willing to take on, you can invest as much as your financial situation allows you. However, depending on your trading style there is a minimum capital requirement imposed by the US regulatory bodies that you have to maintain in your account.
For example, if you’re a stock day trader, then you need to hold a minimum account balance of $25k. According to FINRA, the Financial Industry Regulatory Authority in the US, a pattern day trader must keep a minimum account balance of $25,000 on any day if you day trade four or more times in five business days.
If you’re investing in stocks, there is no minimum capital requirement. Some stockbrokers even have a $0 account minimum.
For example, Robinhood is a free, US-based stock trading app that allows 100% commission-free stock, options, cryptocurrency and ETF trades. This guide will teach you everything you need to know about Robinhood so you can trade effectively: Robinhood App Trading Guide (Everything You Need to Know).
You don’t have to have big money if you want to buy stocks. Willian O’Neil started his first stock investment with only five shares of P&G. He eventually expanded his efforts and earned regular incomes through dividends and growth.
On the other hand, if you trade penny stocks you can start with as little as $100.
In this step-by-step guide, you'll learn how to trade penny stocks for beginners.
The bottom line is that if you want to start buying stocks and build your stock portfolio you don’t need a crazy amount of money.
Let’s now see how you can make money in the stock market using the CANSLIM investing system.
What’s the Best Stock Market Strategy?
The best stock market strategy was developed by investor William O’Neil. The CANSLIM method uses a combination of technical and fundamental analysis to help you pick the best stocks. Technical analysis involves using raw data. Fundamental analysis involves paying attention to the news. This strategy promises not just to make you money but has the potential to generate higher returns.
Nowadays, stock picking has become extremely difficult with the market trading near its all-time high. However, by using a combination of both technical and fundamental analysis, you can increase your chances of success.
Technical indicators are great tools that provide attractive entry and exit points. At the same time, fundamentals provide you with a framework to pick the best stocks.
This day trading tutorial will break down the general principles and the best way to pick stocks.
Now, how does the CANSLIM strategy work?
The CAN SLIM acronym can be divided into 7 parts that can help you pick high-growth stocks. Each letter corresponds to a particular criterion that a stock must satisfy in order to be considered a good candidate for an investment opportunity.
The CAN SLIM trading system can also be divided into two major sections:
- CAN – Is a fundamental methodology that uses quantitative criteria to pick high-growth stocks.
- SLIM – Is a technical analysis method that studies the price chart of the stock.
Now, let’s break down the CAN SLIM acronym letter by letter:
- C (Current Quarterly Earnings) – Here we should look at the earnings growth over the last 3 quarters. William O’Neil likes stocks with at least 25% growth. If you see earnings consistently accelerating quarter by quarter, the chance of the stock going parabolic increase considerably.
- A (Annual Earnings) – According to William O’Neil, we should see at least 25% annual growth accompanied by at least 17% ROI.
- N (New Products) – A company should undergo changes from time to time. These changes can include new products, new services, new leadership, new pricing to help push the company’s stock to new highs. It’s essential for any company’s growth push for new products, new management, and new events. O’Neil discovered that almost 95% of his top stock picks had experienced something new.
- S (Supply and Demand) – We should look for stocks with heavy accumulation by the smart money investors. If you see a resistance breakout go hand in hand with lots of buying activity that can be measured by reading the volume indicator, you can be sure there is a shortage of supply.
- L (Leader or Laggard) – In CAN SLIM analysis, it’s key to know the stock leaders and laggards in each sector. O’Neil suggests buying stocks that are leaders in their industry or sector. The idea here is to distinguish between the stock leaders and stock laggards. According to the CANSLIM stock trading investment strategy, a market leader is any stock which has its 52-week relative price strength outperforming 80% of the market sector.
- I (Institutional Sponsorship) – It means that the hedge funds and smart money are buyers of the stock you’re interested in. However, this support from institutional players should be limited to 3 to 7 owners. If the stock has too many institutional investors, any bad news may lead to heavy selling.
- M (Market Direction) – You have to trade in sync with the general market direction. More than 70% of the stocks move in tandem with the direction of the market. You must be aware of the market trend, which William O’Neil breaks it into three stages: uptrend, downtrend, and uptrend under pressure. Focus on buying stocks that move in strong uptrends and don’t even bother with a downtrend.
The CAN SLIM trading strategy also has some subjective elements attached to it. Timing the market and finding appropriate entry and exit points may come down to your own chart reading skills. However, fine-tuning your entries doesn’t matter in the big picture, especially if you pick a winning stock.
Let’s now look over on simple ways on how to make money in the stock market fast.
How to Make Money in the Stock Market Fast
We know it’s your dream to learn a method on how to make money in the stock market fast. This is almost every stock investor’s dream. Becoming the next Oracle from Omaha won’t happen overnight.
What’s the fastest and easiest way to make money on the stock market?
We’re going to outline the steps you need to take to make really fast gains in the stock market. This is how you need to run your share portfolio if you want to get rich quick in the stock market.
Note* some of these stock trading tips involve the risk of potentially losing money.
#1 Increase Your Risk
The first step you need to undertake to set yourself up to make quick gains in the stock market is to increase your assumed risk per trade. While you’re opening yourself up to a potential drastic gain, at the same time you’re opening yourself up to losing a big portion of your trading capital. Still, anyone who hopes to make money in the stock market will need to be willing to take some risks.
#2 Increase your Trading Capital
The second thing you can do to make money fast in the stock market is to invest as much money as you can. If you’re trying to get rich quick, then you need to have a big working capital to be able to buy more shares and consequently increase your potential profits.
#3 Picking Stocks with Big Growth Potential
The third thing an investor can do to earn big money from buying stocks is to pick a stock that has the potential to have game-changing growth. Look for stock that is going to create such a product or service that it’s going to be a sector game-changer. Remember, you're not trying to pick stocks that are already valuable. You're trying to pick stocks that are likely to increase in value.
#4 Pick Stocks that Don’t Pay Dividends
The fourth factor to consider is to have in your portfolio companies that don’t pay dividends. If the stock you buy pays dividends it means some of the profits made are given to shareholders and not reinvested in the company. If you want the stock you bought to grow drastically, you want a company to reinvest its profits into its own business to grow it as quickly as possible. Dividend stocks have a much slower growth process. They are usually mature stocks whose values are much less volatile.
Final Words – How to Make Money in the Stock Market
In summary, keep in mind that the stock market is a reliable source of long-term wealth creation. However, you can also learn how to make money in the stock market fast if you’re willing to accept the risk. Even though there are many ways to make money in stocks you also have to have realistic goals. Even though you can hope for the best from your stock investments, ultimately the stock market has the final word.
Our guide on how to make money in the stock market for beginners recommends you to invest your money with a disciplined approach if you want to generate consistent profits. Also, be sure to read our best options trading strategies for beginners guide.
To make good money in the stock market most experts seems to agree that long-term investing is the best way to create wealth so make sure you properly understand the inherent risk before you grab some shares.
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