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THE MARKET WHISPERER 35 5

filters: stocks priced $3 to $10, with trade volumes growing exponentially,
and which rose in one day by more than 10%. To find small caps during
trading, I use my COLMEX Pro tool called the Top 20 which identifies and
displays the leading 20 stocks in the market at any given moment, many of

which are small caps.

What is the Best Time for Trading in Small Caps?

You can trade in small caps throughout the day, but my preferred time is
during the lunch break, which is 11:30 am to 1:30 pm, New York time.
Regular stocks are “resting” because the institutional traders have gone

out to eat, but by contrast, the small caps generally traded by the public are

much more active and provide interesting trade triggers.

What is the Entry Point for Small Caps?

Use the accepted formations, especially breakout and reversals, according
to your personal preferences. Choose the stock based on volatility and

volume considerations: in other words, choose stocks traded in volumes

that are no less than one million shares per day. You must also be sure there
is a reasonable spread of no more than 3 to 4 cents and an appropriate
risk-reward ratio.

The Russell 2000 – Market Index for Small Caps

Just as we do not trade in regular stocks without checking the market
direction as embodied by the S&P 500 intraday behavior, we do not trade
in small caps without a strong backwind from the small caps index, known
as the Russell 2000, symbol RUT$. Just as we use the SPY for following the
S&P 500, we are similarly assisted by the IWM, the Russell 2000 ETF. In
actuality, when a small cap breaks out in large volumes, the Russell 2000
direction will have no effect on it. By contrast, if you wish to understand
the nature of small caps on any particular day and their chance of breakout

on that day, check the Russell 2000 for an overview of the direction and
market force of small caps. Clearly, then, we do not use the Russell 2000
in the same way that we use the S&P 500, which is an intraday tool for
certifying breakouts and breakdowns and for reaching decisions on profit

realization. We use the Russell 2000 only for insight on the “nature” of the

small caps.