What's up you guys? All right? So we got a rainy day here in the Berkshires and I want to make a special video for you guys? I'm gonna talk today about large caps versus small caps. This is a question that traders ask me all the time and there's a lot of room for opinion on this. My feeling is that I prefer to trade small cap stocks and some people will say Ross Trading small cap stocks is it's really risky. Small cap stocks.

They're so volatile it's you know it's It's way too dangerous. Beginner traders shouldn't trade small caps. They should trade stocks like Facebook Apple Netflix Google Tesla Whatever. And my feeling on that is that large cap stocks are actually for a lot of reasons more difficult.

So that's the topic of today's episode. So let's go over a little bit of a walk and get into it and we've got some chop on the water today. Look at this. It's a good day to be a fish.

Those guys must be really enjoying it And honestly I think the question is when is it not a good day to be a fish? What a life man. They're really. you're really living easy. Over there it's raining, you actually have a little bit of thunder and a little bit of hail, but it seems like there's still a little bit of ice that right there it's a little piece of hail.

All right. So large cap, small cap. So let's get to it. My feeling is it's better to trade small caps as a beginner trader.

And here's the reason: most beginner traders and I was no exception. Now, don't have a lot of money and so stocks like Facebook Apple Netflix Google they're not affordable and most of those stocks on any given day at most might move three or four percent. It is very uncommon that they would go up as much as 10 or 15% So if you have a small account of, let's say let's just say for a round numbers, you've got a thousand dollar account. Well, a stock like Facebook that goes up three percent and that's from the very bottom to the very top.

With a thousand dollar account the most you make 3% it's 30 bucks. It's that it doesn't even cover your commission. Now of course, if you're trading on leverage and using margin now, you'd be able to buy a little bit more and you might be able to make a hundred dollars. But you're putting your entire account into that trade and it's very unlikely that you will get the full bottom to top of the move of an intraday move.

What's more likely is that you get a small piece of it, and in fact, typically if I even get half of the entire move I consider that I did a pretty darn good job. Typically I might only get a quarter to a third. So take that 3% and cut it in half. And that's best case scenario.

Pet percent and a half. Now One of the things that I discovered pretty early on was that the biggest winners that I had. We're on stocks that made big moves. So it was on like a $4 stock that squeezed from $4 to $6 That's a 50% move.

That's a really big move and that for someone with a small account that's juicy, that's exactly what you want. Now let's just say you put your thousand dollar account into a stock like that and you capture only half the move. That's two hundred and fifty dollars without using leverage versus and you know what we were talking about before. like fifteen to thirty dollars.

So small cap stocks in my opinion, if you're trying to grow a small account or important, but how do you manage that volatility there? obviously volatile. here's my here's my approach: I Want to trade small cap stocks? And before, right, let me just step back for one second because I didn't do this in the beginning. I Probably should have what is the small cap and what's a large cap. So generally when people think of large cap stocks, they think of expensive stocks.

and when they think of small cap stocks, they think of cheaper stocks. And while oftentimes that is true, it's not always true. When you really look at capitalization, it's the price of the company right now times the number of shares that are available to trade. So float becomes an even more important factor really than than price.

I Generally prefer stocks with a float of under under 30 million shares, under 20 million under 10 is best. I Rarely will trade a stock with a float of 75 or 100 million shares, although every now and then I will. but usually I Don't Most people you know, when you think of a cheap stock, you just assume it's a small cap. but there are a lot of stocks out there.

Sirius Satellite Radio Ford For a long time Bank of America these are stocks under $20 They're not small caps because they have huge floats and the float is the number of shares available to train. So the float represents the supply. the number of shares available. What we're looking for as traders is an imbalance between supply and demand.

So what creates demand? Number One: Breaking News: That's the biggest generator of high levels of demand. It's breaking news. Whether it's earnings, whether it's Kovat 19, whether it's FDA approvals, clinical trials, anything like that news, is the biggest generator of demand. A second generator of demand note, or a second indicator of demand is going to be when we see a stock with high relative volume.

And so we measure that by looking at the average volume over the last 14 days and then how is today's volume relative to that? Is it above average? And then it's high relative volume. So when you have a small cap stock with a float of under 20 million shares that has above average volume that has a news catalyst that is the type of stock that has the potential to move 20, 30, 40, 50, 100 percent or more. Last month, during the Cova 19 beginning of the pandemic, there were a few stocks in the biomedical pharmaceutical space that made incredible moves. One of them was called a HP I floated less than 10 million shares.

The stock went up over 4,000 percent over the course of and maybe just like a week or so, which is absolutely phenomenal. From $2 to over 69 dollars a share, it was after hours on the day. it hits high. If you have a small account, that's the type of stock you want to be trading, right? That's how you grow a small account.

So in December Before some of these huge moves, I was trading with a 500 dollar account and in about 17 days I turned that 500 dollar account into over 53,000 dollars. On day one, I made one hundred and fifty eight dollars. Not a lot of money, but I won't I mean relative. Relatively speaking, it's great return on a 500 dollar account.

but 150 dollars is not crazy money. day - I think I made twelve dollars. Day three amid 74 and on day four, I made about $400 So by the end of the first week, I had doubled my account I wouldn't have been able to do that trading large cap stocks unless I was trading options. The beginner trainers really don't want to be trading options because they're more difficult, they take longer to learn, and your max loss is that it could go back to zero.

So in my opinion as a beginner trader trading stocks number one that have news is first and foremost whether you're trading small caps or large cats. cuz stocks that have news will trade in a more predictable way, will have more volume, will have better spreads, and are just easier to get in and out of. It's really starting to come down out here. Yesterday I traded a stock at about a $1 70 and it squeezed from a dollar 770 up to $2 so almost almost 20% And I was the stock that I shared with my students and it was on a watch list and we had a great trade on it.

The total volume was a hundred and sixty nine million shares. One hundred and sixty nine million shares in one day. That's above average volume out of Catalyst, So that's the type of stock you want to trade. Well, you have to be careful about with small caps and and this is an important thing to be aware of, you have to be really careful trading below volume small caps.

On any given day, stocks like Facebook and Apple and Netflix and Tesla they'll have volume. Not a lot of volume, but but they'll have a little volume and a decent amount of volume. certainly compared to a small cap. And that's because they have high levels of institutional ownership by the hedge funds, a lot of pension funds, a lot of mutual funds.

They're buying and selling shares throughout the day. This right here is an elephant. I've been working on it. It's not perfect if I'm gonna be honest, but it's a work in progress and it's only gonna get better.

So that's that's my help. So on any given day you could pull up Apple or Facebook and you might think, oh, this is something that you know is actually worth trading. And so a lot of traders end up getting caught in that kind of habit of saying, well, there's not a lot moving in small caps, so I'm just gonna go ahead and trade. You know, Apple or Facebook The problem is, on those type of days, those stocks, they're heavily traded by algorithms, they're gonna be choppy.

They're gonna be difficult to trade, and more than anything, if you trade them, you're likely to lose money. On the other hand, small cap stocks. On days where they don't have volume, the spreads are huge, It's hard to get in, it's hard to get out, and they're really not safe to trade either. So regardless of whether you want to trade large caps or small caps, you've got to focus on stocks that have a reason to move.

That's gonna usually come in the form of some type of catalyst. Oh My. God. 30 miles an hour? Wow, this is a terrible idea.

Well, did you guys learn anything? Hopefully you'll learn something. Hopefully you learned that If you've got a small account that you want to grow it quickly, small Caps are where it's at. You can trade large caps to certainly trade options on them butts. Advanced stuff and they're expensive.

Focusing on account growth. Small caps are what you want to trade. That's what I've been trading and the Federated January 2017 when I started my 580 3, 2 1 million dollar challenge trading exclusively small caps. This December put to the test again.

fifty Three thousand dollars in one month. So the proof is right there. It's it's really what you want to focus on, but you got to make sure you focus on the ones that have high volume. have a reason to make a move because if you get into the light volume stuff, it can be hard to get in harder to get out and even for me with big share size, it's almost impossible to trade the ones with light volumes.

So I just have to leave them alone. I Actually have a sticky note on my my desk that says Ross low volume stocks are killing you And that's because when I get into these low volume small cap stocks, it's you just get churned out, you get chopped up and for me I just find myself losing money. So gotta focus on stocks with volume relative volume in the Catalyst small caps for the ones that I focus on. All right.

Give me your insight, your two cents right down below in the comments and we'll see you guys for the next episode. Hopefully April showers. Bring May flowers. That's what I'm hoping for.

See you guys later! Bye hey did you know that I Go live every single morning between 9:00 and 9:15 to stream my pre market watch list. Subscribe to channel. Press the bell for the alert and you'll get the notification you.