![]() ![]() And when this happens, the stock comes crashing down. They will eventually exit their positions. They know that these companies are garbage also. These big players can buy up these names and send them a skyrocketing price. Just a drop in the bucket for most Wall Street funds. It only takes 10 million dollars to buy up 20% of its float. If we look at a small cap stock like $SOLO, it’s float is only 10 million shares, and it trades at about $5 a share. More Manipulation Because small-cap stocks have low market caps, it doesn’t take much money (for Wall Street players) to move these markets. If you do trade these, be sure to take your profits when you have them. Many novice small-cap traders get stuck holding the bag and lose a ton of money. Most of the time penny stocks gapping up big, even with a positive catalyst, will get sold into hard, and fade off the whole day. But you should understand that 99% if small-cap stocks that gap up on some type of news will NOT make a BPTH-like move. This doesn’t mean you cannot make money off them to the long side, as many small-caps with awful fundamentals will go on monster runs (BPTH going from $2 to $70 is 3 days). Cons Many Fade Their Gaps The majority of small-cap stocks are garbage companies. These things move fast, so you have to be very quick to capitalize on these opportunities to the long or short side. Penny stocks will sometimes rip 50%-100% in just an hour at the market open. BPTH ran from about $7 to $73 in just two days earlier this month. Fast Moving Penny stocks will often make these huge percentage moves in just a few hours or days. ![]() The large range can provide amazing trading opportunities if you can time your entries and exits correctly. 50%-100% moves happen usually on a monthly basis in rabid bull market we have been in for the last decade. Large Range As you have probably seen, small-caps can get some crazy momentum once volume and buyers come in. If you follow a proven strategy and have sound risk management, you can potentially trade these successfully and make good money. Small-cap stocks should be treated as trading vehicles, not as long term investments. That being said, this doesn’t mean you should invest in them, as most of these companies fail in the long run, and you will lose your money. With penny stocks, you only need to buy 500-1000 shares of a $5 stock to make decent returns. When you trade a bluechip stock like Facebook, which trades at around $165 a share at the moment, you need to have tens of thousands of dollars to get a worthwhile return from trading or investing in it, and it takes forever to move. Here are the pros and cons of trading small-cap stocks: Pros Don’t Need Much Capital To Make Returns Whether you are buying or shorting small-caps, you don’t need to have much money to be able to make solid returns. Trading them is not as easy as most trading services make it seem. If you are considering trading small-caps, you need to know what you’re getting into. And most do not understand the challenges of maintaining trading consistency in the niche. But the trading style is not suited for everyone. There are a ton of opportunities to the long and short side on these names. We have many traders in our chatroom who have made small-caps their primary niche. I know many successful small-cap and penny stock traders. They expect to turn $1000 into $10,000 in a week because they are going to buy the next Amazon. Most new traders are drawn into trading penny stocks by the prospect of making 100’s of percent returns in just a few days. ![]()
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