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Trade Like an O'Neil Disciple: How We Made Over 18,000% in the Stock Market

by Gil Morales and Chris Kacher (2010)

Quick summary -- an in-depth PhD-level extended summary (10-30 pages) for this book is coming soon.

Trade Like an O'Neil Disciple: How We Made Over 18,000% in the Stock Market

Author: Gil Morales and Chris Kacher | Categories: Growth Investing, Technical Analysis, Stock Picking, Trading Systems

Executive Summary

"Trade Like an O'Neil Disciple" by Gil Morales and Chris Kacher documents how two former William O'Neil + Company employees applied and extended the CAN SLIM methodology to achieve extraordinary returns of over 18,000% in the stock market. Published by Wiley in 2010, the book serves as both a tribute to William O'Neil's growth stock investing philosophy and an evolution of it, incorporating the authors' own refinements developed during their years working directly with O'Neil and subsequently trading independently.

The book provides detailed instruction on the O'Neil/CAN SLIM approach to growth stock investing while introducing proprietary concepts like the "pocket pivot" buy point and refined short-selling techniques. Morales and Kacher share their actual trading records, including specific trades, portfolio management decisions, and the psychological challenges they faced during their journey.

Core Thesis & Arguments

The authors argue that CAN SLIM -- the growth stock selection methodology pioneered by William O'Neil -- can be dramatically enhanced through refined technical entry points, disciplined risk management, and a willingness to sell short during bear markets. Their central contribution is demonstrating that the O'Neil methodology is not just a buy-and-hold growth strategy but a complete trading system that includes market timing, short selling, and concentrated position management. They advocate for a focused portfolio approach rather than broad diversification, arguing that conviction backed by rigorous analysis produces superior returns.

Chapter-by-Chapter Analysis

Chapters 1-3: The O'Neil Foundation

Detailed exposition of the CAN SLIM methodology: Current quarterly earnings, Annual earnings growth, New products/management/highs, Supply and demand, Leader or laggard, Institutional sponsorship, and Market direction. The authors explain how they learned these principles directly from O'Neil.

Chapters 4-6: Refining the Buy Point

Introduction of the "pocket pivot" concept -- a buy signal based on volume characteristics that allows earlier entry than traditional O'Neil breakout points. Detailed analysis of base patterns, cup-with-handle formations, and the visual characteristics of winning stocks before their major moves.

Chapters 7-9: Short Selling Mastery

Comprehensive treatment of short selling growth stocks, including identifying distribution patterns, head-and-shoulders tops, and late-stage bases that signal the end of a stock's advance. The authors argue that short selling is essential for complete market mastery.

Chapters 10-12: Portfolio Management and Real-World Application

Actual trade examples with entry and exit points, position sizing decisions, and the authors' combined track record. Discusses the psychological and practical challenges of managing concentrated growth stock portfolios.

Key Concepts & Frameworks

  • Pocket Pivot Buy Points: Volume-based buy signals that precede traditional breakouts.
  • CAN SLIM Extended: The O'Neil methodology with refined technical analysis overlays.
  • Short Selling on the Way Down: Systematic approach to profiting during market declines.
  • Concentrated Portfolio Management: Running 4-8 positions with conviction rather than diversifying broadly.
  • Market Direction Assessment: Using distribution day counts and follow-through days to determine overall market health.

Practical Trading Applications

  1. Screen for CAN SLIM characteristics to build a watch list of potential leaders.
  2. Use pocket pivot signals for earlier entries into base breakouts.
  3. Count distribution days to assess market health and determine exposure levels.
  4. Learn to sell short during bear markets rather than sitting in cash.
  5. Cut losses at 7-8% below purchase price without exception.
  6. Let winners run by selling only on clear technical sell signals.

Critical Assessment

Strengths: First-hand account from practitioners who learned directly from O'Neil. Introduction of pocket pivot concept adds genuine value. Real trade examples with actual P&L. Honest discussion of both wins and losses.

Weaknesses: Requires significant chart-reading ability that takes years to develop. Some survivorship bias in presenting results. The concentrated portfolio approach carries extreme risk for less experienced traders.

Best for: Intermediate to advanced growth stock traders who want to deepen their understanding of the CAN SLIM methodology and learn proprietary refinements from two of O'Neil's most successful proteges.

Key Quotes

"The key to making big money in the stock market is to not get scared out of a winning position."

"You can be wrong on the market direction and still make money if you manage risk properly."

"The pocket pivot provides a lower-risk entry point that the traditional buy point simply cannot offer."

Conclusion & Recommendation

"Trade Like an O'Neil Disciple" is an essential companion to O'Neil's own "How to Make Money in Stocks" for serious growth stock traders. The pocket pivot concept alone is worth the price of admission. The book's greatest value lies in showing how two real traders applied a well-known methodology to achieve extraordinary results, including the detailed mechanics of their decision-making process. Readers should have a solid foundation in technical analysis and the CAN SLIM system before tackling this book.