Page 360 - THE MARKET WHISPERER

356 PART 10 - Winning Trades

Should We Short on Small Caps?

The volatility of small caps in cents is very similar to that of larger stocks.

As we learned, stocks move in cents rather than percentages, and therefore
you should not try to buy 10 times more in small caps than you would for
regular stocks, since you will still be increasing the risk tenfold! As a rule

of thumb, we trade in small caps in exactly the same quantities as regular

stocks. In actuality, you must check the stock’s volatility in real time and

decide on the spot as to the best quantity, according to stock volume and

behavior.

SMART The volatility of small caps in cents is similar to that of
MONEY large stocks. Therefore, we will usually buy small caps in
the same quantities as we would buy large caps.

Summary

To reduce risk, professional day traders will generally trade in large and
medium caps with high liquidity and narrow spreads. It is definitely
possible to trade in small caps, but prior to entering the stock, be very sure
of your choice and handling decisions. Professional, precise handling will
generally produce higher yields relative to the stock’s price.