How many of you are day trading gappers or small caps ?
- Thread starter Spikeet
- Start date
Yes. I am consistently profitable trading these. The speculative energy in them comes in waves. Right now we are at a low point for all speculative assets but I still trade them and still make money, just not as much. The easy money is in these small morning runners, imo. If you geek out on it and really pay attention to how these move every morning you will see what is happening. You can tell which ones traders are likely to keep piling into as the morning goes on. Buy those. You can also tell when the energy is dying out late in the morning.
For anyone not familiar: Use a "scanner" to find small stocks that are up 5%+ to 10%+ or more in the morning. They usually move on high volume (relative to their average volume at that time of day). They are often popping on news but not always. They also frequently release their news and pop an hour or two or three before the market opens. Traders flock to these and pour money into them.
The frequency and energy in those small gappers does come in waves. Every few months the mood changes. Has been like this for years. You can make money at all times. You just make less in months where the excitement in this stuff is lower.
For anyone not familiar: Use a "scanner" to find small stocks that are up 5%+ to 10%+ or more in the morning. They usually move on high volume (relative to their average volume at that time of day). They are often popping on news but not always. They also frequently release their news and pop an hour or two or three before the market opens. Traders flock to these and pour money into them.
The frequency and energy in those small gappers does come in waves. Every few months the mood changes. Has been like this for years. You can make money at all times. You just make less in months where the excitement in this stuff is lower.
It's probably also good to point out that this takes dedication, work, practice, etc. That isn't obvious to everyone. If you haven't traded these before you will have to dedicate time and money to trading them for a while before it "clicks". Takes time.
That is one way to trade them but I disagree it is a requirement. You can hold these for 10 minutes to 3 hours and ride the wave. That is exactly what I do. You may be influenced by Ross Cameron since he does rapid trades, but he has people jumping into stocks right behind him. You can't mirror his results and it's not the way most people are trading these stocks.
Most of my trades are stocks under $10. Wall Street firms can't effectively trade small/micro caps moving with high volatility. They need to move far more money in and out of trades just to cover their office, salaries, data fees, etc. By trading these you are not likely competing with them. That's why you can win with these. Guys at those firms are capable of seeing the opportunity but they can't make any money on them from their point of view. They are trading with tens of millions of dollars even at a very tiny firm. So if you are happy trading with an account that is under maybe $5 million then this is the sweet spot. If you need to make many millions per year then you won't find the liquidity you need with these stocks.
OTC stocks should be avoided. The deck is stacked well against you with those. Stick to exchange traded stocks.
I would add to FGR's comments, that a basket trade approach helped me a lot when doing this. It helped in several ways:
1) Allows one to spread allocations across multiple stocks
2) 1 opens up the "sympathy" trade option
3) easier to manage the order generation all at once
4) easier to manage the overall R:R
To the OP, it comes and goes but, imo there is almost always better options that are more consistent month to month, quarter to quarter. But hey maybe your service could give people an helping hand by making the screening and secondary-tertiary selection process easier or "canned" customizable.
1) Allows one to spread allocations across multiple stocks
2) 1 opens up the "sympathy" trade option
3) easier to manage the order generation all at once
4) easier to manage the overall R:R
To the OP, it comes and goes but, imo there is almost always better options that are more consistent month to month, quarter to quarter. But hey maybe your service could give people an helping hand by making the screening and secondary-tertiary selection process easier or "canned" customizable.
Any favorite order types or algos you’ve found effective with these? I’ve always found the cumulative slippage of in-play small caps to eat up most of the edge.
1. Yes
2. Spreads will be wider than large caps. You can overcome that for sure. If you trade stocks with larger spreads and ultra high liquidity then you are going up against math PhDs from MIT. They will beat you. I am surprised at how much emphasis people put on the spreads without realizing WHY those spreads are as they are. They are wide because the smart money isn't playing. Avoid the smart money or you will lose.
Sometimes I try to short small cap names that have made a parabolic move up but 9 times out of 10 IBKR doesn't have any shares available to short, at least not while the price is still "attractive". Then 5 days later I get an email from them saying they now have shares available to short. WTF?