How to Make Money in Stocks

Imagine stepping into the world of investing with confidence, knowing you have a roadmap that has guided others to incredible success for over a century. You don’t need to be a financial guru or rely on someone else’s advice. With the right tools and knowledge, you can uncover the market’s biggest winners, recognize proven patterns, and sidestep costly mistakes. This book “How to Make Money in Stocks” by William J O’Neil (founder of Investor’s Business Daily) is your guide—a collection of strategies and insights that will empower you to make smarter decisions, whether you’re just starting out or looking to refine your approach. If you’re ready to take control of your financial future, turn the page and let’s begin. The path to becoming a successful investor is here, and it starts with you.

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How To Make Money in Stocks Summary

📖 Introduction: You Can Learn and Benefit from America’s 100 Years of Super Winners

This section highlights the importance of taking control of your investments and learning from historical market successes. The author emphasizes that you don’t need to rely on advisors or follow media hype. Instead, focus on learning fundamental principles that have worked for over 100 years.

Key themes include:

• Avoid common mistakes like buying stocks on the way down.
• Focus on rising stocks and buy when stocks show upward momentum.
• Use charts to recognize price patterns.
• Understand supply and demand dynamics.
• Learn from past winners: Historical examples illustrate that successful investing requires identifying proven patterns.

Action Steps for Investors:

1. Invest in Learning: Read investment books, attend classes, or join investment groups to build your knowledge.
2. Use Charts: Familiarize yourself with chart patterns like cups with handles and high-tight flags.
3. Track Market Leaders: Focus on stocks near their yearly highs, not lows.
4. Sell Small Losses Quickly: Avoid the mistake of holding onto losing stocks.
5. Ignore the Hype: Avoid recommendations from analysts or newsletters without thorough research.
6. Start Small: Begin investing with as little as $500-$1,000 and gradually increase your investment.
7. Learn CAN SLIM: Memorize the CAN SLIM method, which summarizes key traits of successful stocks.

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📊 Chapter 1: The Greatest Stock-Picking Secrets

This chapter presents 100 historical charts of stocks that achieved massive gains, illustrating key patterns before their price surges. These charts help investors recognize successful setups and understand the importance of timing and growth indicators.

Key lessons include:

• Repetition of Patterns: Winning stocks follow consistent chart patterns, such as breakouts from bases and strong volume increases.
• Combining Fundamentals and Technicals: Focus on earnings growth, return on equity, and technical indicators showing institutional buying.
• Historical Examples: Stocks like Bethlehem Steel and Northern Pacific demonstrate timeless patterns of accumulation and breakout.

Action Steps for Investors:

1. Study Historical Charts: Analyze historical winners to understand recurring patterns.
2. Recognize Key Patterns:
   • Cup with Handle: A bullish continuation pattern.
   • High-Tight Flag: A sharp upward move followed by tight consolidation.
3. Combine Criteria: Look for:
   • Strong Earnings Growth.
   • Volume Surges on breakouts.
   • Relative Strength compared to the market.
4. Practice Chart Analysis: Use stock charts to practice identifying patterns before making trades.
5. Avoid Weak Stocks: Steer clear of stocks with weak charts or lagging industry performance.

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📈 Chapter 2: How to Read Charts Like a Pro and Improve Your Selection and Timing

This chapter explains how to interpret charts effectively to enhance your stock selection and timing. Charts are essential tools that reveal the psychology of the market, showing when to buy, hold, or sell. The focus is on identifying breakouts, bases, and volume trends.

Key points include:

• Chart Basics: Understand key components like price, volume, moving averages, and trendlines.
• Buy Signals: Recognize breakouts from bases, which signal potential upward momentum.
• Sell Signals: Learn when to exit based on weakening patterns, such as failed breakouts or high-volume declines.
• Importance of Volume: Volume increases indicate institutional interest.

Action Steps for Investors:

1. Master Basic Charts: Familiarize yourself with line, bar, and candlestick charts.
2. Identify Patterns: Focus on:
   • Bases: Cup-with-handle, double-bottom, and flat bases.
   • Breakouts: Buy when the stock breaks above a resistance level with high volume.
3. Monitor Volume Trends: Ensure breakouts are accompanied by significant volume.
4. Set Stop-Loss Orders: Protect your capital by setting stop-losses to limit potential losses.
5. Track Moving Averages: Use the 50-day and 200-day moving averages to gauge trends.
6. Avoid Chasing: Don’t buy stocks that have surged too far beyond their breakout point.

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📊 Chapter 3: C = Current Big or Accelerating Quarterly Earnings and Sales

This chapter focuses on the importance of identifying stocks with strong or accelerating quarterly earnings growth. Historically, the most successful stocks showed significant increases in quarterly earnings before their major price advances.

Key points include:

• Quarterly Earnings Growth: Look for stocks with earnings per share (EPS) growth of at least 25%-50% or higher compared to the same quarter the previous year.
• Sales Growth: Accelerating sales growth often supports earnings growth; aim for sales increases of at least 25%.
• Consistency: Companies that deliver consistent, robust quarterly earnings are more likely to see sustained price growth.

Action Steps for Investors:

1. Screen for Earnings: Use stock screeners to identify companies with quarterly EPS growth of 25%-50% or more.
2. Check Sales Data: Ensure that sales are growing in tandem with earnings to validate the strength of the growth.
3. Look for Acceleration: Prefer companies where earnings and sales growth are accelerating over consecutive quarters.
4. Avoid Declining Trends: Be cautious of companies with declining or inconsistent earnings growth.
5. Confirm with Charts: Use charts to ensure the stock is forming a proper base and breaking out with strong volume.

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📈 Chapter 4: A = Annual Earnings Increases: Look for Big Growth

Annual earnings growth is a key indicator of a company’s long-term success. This chapter emphasizes that the best-performing stocks typically have three to five years of strong annual earnings growth before their biggest price gains.

Key points include:

• Annual EPS Growth: Look for companies with annual earnings growth of at least 25% over the past 3-5 years.
• Steady Growth: Consistent annual growth is more reliable than sporadic surges.
• High Return on Equity (ROE): A strong ROE (at least 17%) indicates that management is efficiently generating profits from shareholders’ equity.

Action Steps for Investors:

1. Analyze Annual Reports: Review annual earnings for the past 3-5 years to identify companies with consistent growth.
2. Set Growth Thresholds: Focus on companies with annual EPS growth of 25% or higher.
3. Evaluate ROE: Prioritize companies with an ROE of 17% or more to ensure management efficiency.
4. Avoid Flat Growth: Be wary of companies with stagnant or declining annual earnings.
5. Combine with Quarterly Data: Cross-reference annual growth with strong quarterly earnings to confirm a company’s upward trajectory.

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🚀 Chapter 5: N = Newer Companies, New Products, New Management, New Highs

This chapter highlights the power of innovation and change in driving stock success. The greatest winners often represent companies with new products, new management, or reaching new price highs.

Key points include:

• New Products or Services: Innovations that disrupt industries can lead to massive growth (e.g., Apple’s iPhone, Google’s search engine).
• New Management: Changes in leadership can rejuvenate a company’s strategy and performance.
• New Highs: Stocks making new price highs are often under strong institutional accumulation.

Action Steps for Investors:

1. Identify Innovations: Look for companies launching new products or services with significant market potential.
2. Track Management Changes: Pay attention to companies where new leadership has a track record of success.
3. Buy at New Highs: Don’t fear buying stocks at new highs; it often signals strength and upward momentum.
4. Follow Industry Trends: Focus on sectors experiencing transformative changes or rapid growth.
5. Watch for Breakouts: Use charts to identify stocks breaking out to new highs from sound bases.

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📊 Chapter 6: S = Supply and Demand: Big Volume Demand at Key Points

This chapter focuses on the fundamental principle of supply and demand in the stock market. The price of a stock rises when demand (buying interest) significantly exceeds supply (available shares). Monitoring volume helps identify when big investors (institutions) are accumulating shares.

Key points include:

• Volume Spikes: Large volume increases during breakouts signal institutional buying.
• Float Size: Stocks with a small number of shares available (low float) can see rapid price increases when demand surges.
• Accumulation Days: Identify days when the stock rises with higher-than-average volume.

Action Steps for Investors:

1. Monitor Volume: Look for volume increases of 40%-100% above average during price breakouts.
2. Low-Float Advantage: Prioritize stocks with a low float, as they can rise sharply when demand increases.
3. Identify Accumulation: Track multiple accumulation days (higher volume up days) within a short period.
4. Avoid Distribution Days: Be cautious if you see multiple days where the stock price drops on high volume.
5. Use Charts: Confirm breakouts from chart patterns (e.g., cup-with-handle) accompanied by strong volume.

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🥇 Chapter 7: L = Leader or Laggard: Which Is Your Stock?

This chapter emphasizes the importance of investing in market leaders rather than laggards. The best-performing stocks often belong to the top-performing industries and exhibit strong relative strength compared to the overall market.

Key points include:

• Relative Strength (RS) Ratings: Choose stocks with an RS rating of 80 or higher.
• Industry Group Strength: Leaders often come from the strongest-performing industries.
• Avoid Laggards: Stocks underperforming the market or their peers are riskier investments.

Action Steps for Investors:

1. Check RS Ratings: Prioritize stocks with an RS rating of 80+ (indicating they outperform 80% of stocks).
2. Analyze Industry Trends: Focus on industries experiencing strong growth or innovation.
3. Compare Peers: Invest in the number one or two stocks in a leading industry group.
4. Avoid Weak Performers: Stay away from stocks with declining RS ratings or those lagging behind their peers.
5. Use Stock Screeners: Screen for leaders using tools like IBD’s RS Ratings or similar metrics.

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🏛️ Chapter 8: I = Institutional Sponsorship

This chapter highlights the importance of institutional sponsorship in driving stock prices higher. Institutions (mutual funds, hedge funds, etc.) have the resources to buy large quantities of shares, pushing prices upward.

Key points include:

• Institutional Ownership: The best stocks are often owned by several high-quality institutions.
• Increasing Sponsorship: Look for increasing numbers of institutional buyers over consecutive quarters.
• Fund Quality: Focus on stocks owned by top-performing mutual funds and professional investors.

Action Steps for Investors:

1. Track Institutional Ownership: Ensure the stock is owned by at least a few high-quality institutions.
2. Monitor Trends: Look for increasing institutional ownership over recent quarters.
3. Quality Over Quantity: Prioritize stocks held by top-rated mutual funds and institutional investors.
4. Watch Distribution: Be cautious if institutions are reducing their holdings (sign of weakness).
5. Research Tools: Use tools like IBD’s Stock Checkup to assess institutional sponsorship levels.

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📉 Chapter 9: M = Market Direction: How You Determine It

Understanding the overall market direction is crucial for successful investing. Even the best stocks can struggle during market downturns. This chapter focuses on identifying the market’s trend to improve your timing.

Key points include:

• Follow the Major Averages: Track indices like the S&P 500, NASDAQ, and Dow Jones to gauge the market’s health.
• Distribution Days: A cluster of days where the market closes lower on higher volume signals potential downturns.
• Follow-Through Days: After a market correction, a strong rally with higher volume can indicate a new uptrend.

Action Steps for Investors:

1. Track Indices Daily: Follow the S&P 500, NASDAQ, and Dow Jones to understand overall trends.
2. Identify Distribution Days: Sell or avoid buying if you notice four to five distribution days within a few weeks.
3. Spot Follow-Through Days: Look for a 1.5%+ gain on higher volume after a correction to confirm a new uptrend.
4. Stay in Sync with the Market: Invest aggressively in uptrends and be defensive during corrections.
5. Use Moving Averages: Monitor the 50-day and 200-day moving averages to identify bullish or bearish trends.

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✂️ Chapter 10: When You Must Sell and Cut Every Loss … without Exception

This chapter stresses the critical rule of cutting losses quickly to protect your capital. Successful investors limit losses to 7%-8% of their purchase price to avoid catastrophic damage to their portfolios.

Key points include:

• Never Hold Losing Stocks: Hoping a losing stock will recover often leads to larger losses.
• Set a Stop-Loss: Automatically sell if a stock drops 7%-8% below your purchase price.
• Avoid Emotional Decisions: Stick to your stop-loss plan to avoid letting emotions dictate your strategy.

Action Steps for Investors:

1. Set Stop-Loss Orders: Place a stop-loss at 7%-8% below your purchase price.
2. Accept Small Losses: Selling quickly limits damage and preserves capital for better opportunities.
3. Avoid Hope-Based Decisions: Don’t hold onto losing stocks, expecting them to rebound.
4. Review Mistakes: Analyze why a stock failed to improve your decision-making process.
5. Stay Disciplined: Cutting losses is a non-negotiable rule for long-term success.

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💰 Chapter 11: When to Sell and Take Your Worthwhile Profits

Knowing when to sell and lock in profits is as important as knowing when to buy. This chapter explains how to take profits strategically to maximize gains.

Key points include:

• Sell at 20%-25% Gains: Most winning stocks give a 20%-25% profit before pulling back.
• Ride Big Winners: For exceptional stocks, use chart analysis to hold through larger gains.
• Watch for Weakness: Sell if the stock shows signs of distribution or breaks key support levels.

Action Steps for Investors:

1. Target 20%-25% Gains: Take profits when a stock rises 20%-25% from your purchase price.
2. Use Trailing Stops: Protect profits by setting trailing stop-losses to exit if the stock reverses.
3. Hold Exceptional Stocks: For stocks with strong momentum, use charts to identify when to hold longer.
4. Recognize Sell Signals: Sell if the stock closes below the 50-day moving average on heavy volume.
5. Stay Flexible: Adapt your sell strategy based on the stock’s performance and market conditions.

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💼 Chapter 12: Money Management: Should You Diversify, Invest for the Long Haul, Use Margin, Sell Short, Buy Options, IPOs, Tax Shelters, Nasdaq or Foreign Stocks, Bonds, Etc.?

This chapter provides a comprehensive guide on how to manage your money wisely in the stock market. The focus is on balancing risk and reward, avoiding excessive diversification, and knowing when to use specific investment tools.

Key points include:

• Diversification: Over-diversification can dilute returns. Limit your portfolio to 5-10 carefully selected stocks.
• Long-Term Investing: Focus on holding stocks with strong growth potential but be ready to sell if the stock breaks down.
• Using Margin: Borrowing money to invest can amplify gains but also losses. Use margin cautiously.
• Short Selling and Options: These strategies are advanced and risky. Only use them if you fully understand them.
• IPOs and Foreign Stocks: Be selective and ensure thorough research before investing in IPOs or foreign markets.

Action Steps for Investors:

1. Limit Diversification: Hold a concentrated portfolio of 5-10 quality stocks.
2. Invest in Growth: Focus on long-term growth stocks but be ready to sell if they show weakness.
3. Use Margin Wisely: Limit margin use to avoid excessive risk; don’t exceed 10%-20% of your portfolio.
4. Avoid Complex Instruments: Only consider short selling or options if you have experience and a clear strategy.
5. Research IPOs Thoroughly: Don’t get caught up in the hype; wait for IPO stocks to form sound bases before buying.

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⚠️ Chapter 13: Twenty-One Costly Common Mistakes Most Investors Make

This chapter outlines 21 common mistakes that can derail your investment success. These mistakes often stem from emotional decisions, lack of knowledge, or poor discipline.

Key mistakes include:

1. Failing to Cut Losses Quickly.
2. Buying on Tips or Rumors.
3. Over-Diversifying.
4. Ignoring Market Trends.
5. Holding onto Losing Stocks.
6. Not Using Charts.
7. Buying Stocks in a Downtrend.

Action Steps for Investors:

1. Cut Losses Fast: Always sell if a stock drops 7%-8% below your purchase price.
2. Do Your Own Research: Never buy based on tips, rumors, or advice alone.
3. Focus Your Portfolio: Limit yourself to 5-10 high-quality stocks.
4. Follow the Market Trend: Invest when the market is in an uptrend; stay defensive in downtrends.
5. Use Charts: Rely on technical analysis to confirm buy and sell decisions.
6. Avoid Emotional Decisions: Stick to your rules and avoid impulsive trades.

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📈 Chapter 14: More Models of Great Stock Market Winners

This chapter provides additional examples of historical stock market winners to reinforce the lessons learned from previous chapters. By studying these models, investors can recognize the key characteristics of successful stocks.

Key points include:

• Repeated Patterns: Great stocks often display the same chart patterns before their big moves.
• Earnings Growth: Most winners show strong earnings growth before their price surges.
• Volume Increases: Breakouts occur on high volume, signaling institutional buying.

Action Steps for Investors:

1. Study Historical Winners: Analyze charts of past winners to identify recurring patterns.
2. Identify Patterns: Look for cup-with-handle, double-bottom, and high-tight flag patterns.
3. Check Fundamentals: Ensure the stock has strong earnings and sales growth.
4. Confirm Volume: Buy only when breakouts are accompanied by high volume.
5. Practice Pattern Recognition: Use charting tools to practice identifying these patterns before investing.

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📊 Chapter 15: Picking the Best Market Themes, Sectors, and Industry Groups

This chapter focuses on identifying the best-performing market themes, sectors, and industry groups to maximize your investing success. Historically, the strongest stocks often belong to leading sectors experiencing rapid growth or innovation.

Key points include:

• Industry Group Analysis: Stocks in the top 20% of industry groups tend to outperform.
• Market Themes: Recognize emerging trends or disruptive technologies driving market movements (e.g., AI, renewable energy).
• Sector Rotation: The market cycles through different sectors (tech, healthcare, energy); timing your investments accordingly can boost returns.

Action Steps for Investors:

1. Identify Leading Sectors: Use resources like IBD’s Industry Group Rankings to find the top-performing sectors.
2. Track Market Themes: Stay informed about trends driving the market (e.g., technological innovations or policy changes).
3. Focus on Leaders: Invest in the strongest stocks within the best-performing industry groups.
4. Rotate with the Market: Shift investments as new sectors emerge as leaders.
5. Avoid Weak Groups: Stay away from sectors lagging behind or in decline.

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📰 Chapter 16: How to Use IBD® to Find Potential Winning Stocks

This chapter explains how to leverage Investor’s Business Daily (IBD®) tools and resources to find high-potential stocks. IBD provides data-driven insights, including stock rankings, chart patterns, and market analysis.

Key points include:

• IBD 50 List: A curated list of the top 50 growth stocks showing strong fundamentals and technicals.
• Stock Checkup®: Evaluates a stock’s strength based on earnings, relative strength, and institutional sponsorship.
• Big Picture: Provides a daily analysis of market direction to help you stay in sync with the overall trend.

Action Steps for Investors:

1. Use the IBD 50: Review the IBD 50 list weekly for top stock ideas.
2. Check Fundamentals: Use IBD’s Stock Checkup® to analyze earnings growth, relative strength, and sponsorship.
3. Study Charts: Leverage IBD charts to identify breakout patterns and buy points.
4. Follow Market Analysis: Read IBD’s Big Picture to stay updated on market direction.
5. Track Institutional Buys: Look for stocks being accumulated by top-performing funds.

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📈 Chapter 17: Watching the Market and Reacting to News

Reacting appropriately to market news is crucial for protecting gains and minimizing losses. This chapter explains how to interpret news events and their potential impact on your investments.

Key points include:

• Market Sentiment: Major news (e.g., economic reports, geopolitical events) can shift market trends.
• Earnings Reports: Positive or negative earnings surprises can trigger significant price moves.
• Avoid Knee-Jerk Reactions: Don’t overreact to short-term news; confirm with charts and market trends.

Action Steps for Investors:

1. Stay Informed: Follow credible financial news sources like IBD, Bloomberg, or CNBC.
2. Evaluate News Impact: Assess whether news affects a company’s fundamentals or is just short-term noise.
3. Watch Earnings Reports: Monitor quarterly earnings reports and adjust your holdings accordingly.
4. Confirm with Charts: Before acting, use charts to see how the stock reacts to news.
5. Avoid Panic Selling: Don’t sell based solely on news; look for technical confirmation of a trend change.

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💵 Chapter 18: How You Could Make Your Million Owning Mutual Funds

This chapter explains how investors can build significant wealth by investing in mutual funds. The emphasis is on selecting the right funds and applying a disciplined strategy.

Key points include:

• Growth Funds: Focus on funds that invest in high-growth stocks.
• Fund Performance: Choose funds with a history of outperforming the market over several years.
• Expense Ratios: Pay attention to fees, as high fees can erode returns over time.

Action Steps for Investors:

1. Select Growth Funds: Invest in mutual funds that focus on companies with strong earnings growth.
2. Check Track Records: Choose funds that have consistently outperformed the market over the past 3-5 years.
3. Monitor Expenses: Opt for funds with low expense ratios (ideally below 1%).
4. Diversify Across Funds: Invest in 3-5 different funds to spread risk.
5. Review Quarterly: Assess your mutual fund performance regularly and switch if necessary.

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📊 Chapter 19: Improving Management of Pension and Institutional Portfolios

This chapter focuses on strategies for managing pension and institutional portfolios effectively. The goal is to balance risk and returns to meet long-term obligations.

Key points include:

• Asset Allocation: Diversify across stocks, bonds, and other assets.
• Performance Metrics: Measure portfolio performance against benchmarks.
• Risk Management: Ensure the portfolio aligns with the institution’s risk tolerance and financial goals.

Action Steps for Investors:

1. Diversify Asset Classes: Balance investments across stocks, bonds, and alternative assets.
2. Set Benchmarks: Use indices like the S&P 500 or Russell 2000 to gauge performance.
3. Review Risk Policies: Ensure investments match the institution’s risk profile.
4. Monitor Regularly: Conduct quarterly performance reviews and rebalance as needed.
5. Focus on Long-Term Growth: Prioritize strategies that support long-term financial obligations.

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📜 Chapter 20: Important Rules to Never Forget

This chapter reinforces the most critical investing principles covered throughout the book. Success in the stock market requires discipline, knowledge, and adherence to proven rules.

Key rules include:

1. Cut Losses Quickly: Sell if a stock falls 7%-8% below your purchase price.
2. Buy Quality Stocks: Focus on stocks with strong earnings growth and market leadership.
3. Follow Market Trends: Stay in sync with the overall market direction.
4. Use Charts: Rely on technical analysis to confirm buy and sell decisions.

Action Steps for Investors:

1. Memorize Key Rules: Keep a checklist of essential rules, such as cutting losses and taking profits.
2. Stay Disciplined: Follow your rules consistently, regardless of emotions.
3. Review Your Trades: Analyze both successful and unsuccessful trades to improve your strategy.
4. Educate Yourself: Continuously learn about market trends, chart patterns, and investing strategies.
5. Avoid Shortcuts: Stick to proven methods and avoid speculative or impulsive decisions.

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Transforming Your Financial Future

If you’re serious about transforming your financial future, the knowledge in How to Make Money in Stocks is just the beginning. Imagine having the skills to identify winning stocks, time your trades perfectly, and avoid costly mistakes—all with confidence. You can get the book from online Kinokuniya bookstore.

The best way to solidify these skills? Attend a workshop where you can learn firsthand, ask questions, and practice with experts by your side. Investing isn’t just about money; it’s about securing freedom, opportunities, and peace of mind. Take the step to empower yourself—join a workshop and turn your potential into real success.

This post is part of Making Money in the Stock Market, where you can read about the overview of strategies in investment and short term trading.

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Growth Investing eXpress Workshop (GiX)

Another credible educator is Beyond Insights, which was founded in 2008 in Malaysia. They offered courses in investing as well as trading. Growth Investing is about investing in primary on the US stock market. They still offer in-person workshops as well as online via Zoom. You can join the free webinar to see whether it is suitable for you or not.