I believe many investors have experienced the feeling of missing out on buying opportunities during a bull market, where some strong stocks continue to rise but a suitable entry point cannot be found. The feeling of missing out is worse than losing money. In terms of product structure, the company achieved an overall sales volume of 18,000 kiloliters in 2023, a growth rate of +28.10% year-on-year. The operating income of 10-30 billion yuan products were 401/1288/60 million yuan respectively.

In this article, I'll introduce a simple bull market strategy for trading strong stocks, including stock selection methods, how to identify potential buying positions, and how to manage risks. It's suitable for short-term traders who do swing trading.

Stock selection - CANSLIM model

In a bull market, growth stocks are usually more popular than value stocks, but the problem is how to select good quality growth stocks with explosive power?

William J. O’Neil's CANSLIM stock selection model is a good method. He is a famous American growth stock investment guru.

Each letter of the CANSLIM model represents a screening indicator, which comprehensively considers factors of fundamentals, technicals, and chipmakers.

The following are some quantitative criteria for this screening model:

Observant investors may notice that the main purpose of this screening method is to select stocks with strong short-term trends and fundamental support, which can filter out stocks with poor fundamentals but short-term speculative capital.

Investors can use Futubull's stock screener feature to create this strategy. When setting relevant filtering conditions, you can be more flexible, such as adding market cap size, revenue growth and other indicators, which can further narrow the range of stocks.

The following is a result obtained using Futubull's stock screener based on CANSLIM strategy (using U.S. stocks as an example), which shows that AI chip giants Nvidia (NVDA), weight loss drug giant novo-nordisk a/s (NOV), and cybersecurity leader CrowdStrike (CRWD) are all included in the list.

After seeing the results, you can click on individual stocks to learn more information and further analyze business prospects and financial conditions.

Potential buying point signal - EMA and RSI

Generally speaking, the short-term trend of stocks selected according to the CANSLIM model is very strong, and their stock prices are at high levels. Therefore, blindly chasing high is not necessarily a good choice.

Therefore, investors can use technical analysis to find potential entry points. Here I introduce a method that uses two indicators of moving average line EMA and overbought/oversold indicator RSI in combination:

• - EMA 12 and EMA 50 confirm the trend.

• - RSI provides potential entry points.

First, confirm the trend. Most of the stocks selected by the CANSLIM model have very strong short-term trends and these stocks usually have very little chance of a big pullback unless there are black swan events or financial data is significantly lower than expected. Therefore, you can judge whether the trend is intact by using the short-term trend indicators EMA12 and EMA50.

Here is an example of weight loss drug giant novo-nordisk a/s (NVO). Thanks to the strong demand for weight loss drugs, NVO's performance has grown very fast, leading to continuous soaring of its stock price.

From the figure below, it can be seen that since entering the uptrend in 2022, NVO's stock price has been running along EMA12 and EMA50, and it has been supported each time the stock price retraced to EMA50, maintaining the uptrend.

The second step is to use RSI to find potential buying positions. In a situation where the uptrend is intact, if the RSI indicator falls near the 30-point boundary, it indicates that the stock is oversold in the short term, which may be a potential buying opportunity.

In this example of Novo Nordisk, trendlines and RSI indicators play their respective roles, the former helps investors confirm the trading direction, and the latter provides entry timing.

Risk management - Trailing stop order

The stock market is unpredictable, and if a potential buying point is misjudged, investors may suffer serious losses. Therefore, it is best to perform corresponding risk management for each transaction.

In a bull market, you can limit the potential risk of each transaction by using a trailing stop order.

A trailing stop order is an upgraded version of a regular stop order, and the stop loss price will change as the stock price rises.

Returning to the example of Novo Nordisk, if you determine that 90 dollars is a potential buying point through EMA and RSI, and you decide to buy at a price of 90 dollars, the trailing stop order ratio is set at 7%.

Assuming that the stock price has been falling since the purchase of the stock, when the decline reaches 7%, that is, 83.7 dollars, the stop loss price will be triggered, and the stock will be sold with a limit or market order to control the loss.

If the stock price has been rising all the way after it is bought, then the stop loss price will be adjusted with the rise of the stock price. When the stock price rises all the way to 100 dollars, the stop loss price will also roll to 93 dollars. If the stock price starts to fall after rising to 100 dollars, and falls 7% to 93 dollars, the trailing stop order will be triggered, and the stock will be sold to lock in profits.

Therefore, in addition to the stop loss function, a trailing stop order can also lock in profits in advance.

But there are also disadvantages. If the amplitude is set too small, it is easy to trigger a stop loss due to a small decline, which may cause the opportunity to pursue greater profits to be missed.

Written at the end.

Finally, it is necessary to remind investors that no strategy can be perfect in practical trading, and this bull market stock trading strategy also has its defects.

For example, the CANSLIM model is only suitable for use in a bull market. Many stocks selected in the CANSLIM model are at the position of the 52-week high of the stock price, if the market turns around, these stocks may also be the worst-performing stocks.

Investors can quantify their own indicators based on the CANSLIM framework, form their own stock selection strategies, and constantly verify to find the most suitable stock selection strategy for themselves.

Do you understand this method? You can try to select your favorite stock and practice paper trading! Click here to trade >>