How to Find, Trade and Profit From Small Cap Stocks

Mark Crisp,   Momentum Stock Trader

Why small cap momentum stocks? Well, if you understand how the markets work you'll see for the small investor (less than $100,000) it definitely has its advantages to trade in small cap stocks. These are the stocks which can climb over 500%+ per annum.


My Trading Philosophy:

1) Market Timing

2) Stock screening

3) Entry

4) Exits

5) Money Management


In order to win in the stock markets does not mean you have divide a really complicated technical trading method. I've seen hundreds of "poor" technicians. I've seen thousands of useless trading systems. It seems these days, they are getting more and more complicated. Probably because the old adage of "Bull S*** baffles brains" is no more true than in the world of the trading system vendor. Hey... if you are going to sell a computerized trading system for $5,000+, it had better sound complicated. Regardless of whether it makes money or not, people want "excitement". People want to feel they are trading something really special. 


Throughout my trading experience I have found the most profitable traders are those with experience and with very simple trading methods. Some do use a little technical analysis to "aid" them in their trading. Some use none at all. I have never met a successful trader yet, who claims they can predict the future. I know these days we are bombarded from all angles about "guru X predicts the market will do this in the next six months". "Guru Y says he/she expects this to happen." Here's why listening to opinion is not only a waste of time but will lead to losses:

1) NO-ONE, and I mean no-one, can accurately predict the future of the stock market. It's a bit like trying to predict the weather. You can make calculated, scientific predictions which will give you an "idea". But, that's all. Any fool who stands up  and says "the market WILL do this in the next six months" is lying. Take it all with
a pinch of salt.

2) So if point one is true, why would you ever want to listen to some "gurus" opinion on the markets? If no-one really knows what is going to happen, what purpose does listening to opinion serve? It's a fair question. I've seen people get so excited just because a well known analyst on CNBC predicts the end of the bear market and is advising peole to look for stocks. To be fair, they always give a polished talk. If I didn't know better, I too would have fallen for this "hype" five years ago. And then what usually happens? Six months later the market
is at new lows and the analyst is no-where to be heard. There is never any account-ability. Except, of course, when they are correct. THEN the trumpets sound and a NEW GURU is born.

3) Listening or even relying on outside opinion for the future market direction is a losing strategy. Let me tell you a story about me.

Remember the roaring bull market of 1998 - 2000? (oh... what sweet memories) Well even during this run-away bull market many analysts were talking the market down. They said in June/July of 1999 that the market was way out of control, it was far too high and it was going to crash any day. I subscribed to one newsletter, who painted the most convincing argument you could ever wish to listen to as to why the market was going to crash any day soon. I was long in the market 100%. I traded what I "saw" and I saw a bull market with many stocks racing away. YET, after listening to all this negative opinion about the markets I suddenly began to doubt my-self. You can't imagine the turmoil I went through. All my years of telling my-self to trade what I saw and not from opinion (especially outside opinion) was blown out of the water, because I had allowed my-self to listen. 

I toiled with my emotions. Should I listen to this opinion or should I keep 100% long and practice what I preached? I decided to take the latter option. I'd rather fail using my own method than win using outside opinion. So I held 100% long in a runaway bull market where everyone seemed to be talking it down. 

Do you remember what happened on the NASDAQ market from June 1999 until January 2000? It doubled! It REALLY RAN AWAY. I made a further 122% on my trading account during this period. What a time to be long momentum stocks. 

My point here is not boast but to point out the dangers of listening to outside opinion. Had I have been swayed and say gone "short" some of these high flying stocks, not only would I have missed out on a further 122% gain on my portfolio, I would have lost tens of thousands of dollars covering my short positions. 

I am so grateful to have lived through this experience. For this alone, it taught me to keep my ears shut and my eyes open. That's all you need to succeed in the markets. 

Regards,
Mark Crisp

Momentum Stock Trader
http://www.stressfreetrading.com