Trading Strategies

Here are some trading strategies for small and micro cap stocks, that have proven successful over time:

• NEVER INVEST THE ENTIRE AMOUNT YOU ARE WILLING TO COMMIT ON THE FIRST TRADE. We have rarely witnessed a company that did not trade below our profiled price at some point in time. Unfavorable market conditions can be excellent opportunities to add to positions. Also, small companies are often susceptible to experiencing setbacks and delays in the execution of their business plans. This can cause weakness and a decline in the price of their stock. If Management is able to get back the business back on track, these moments can represent a great buying opportunity. If the stock is trading in your favor, you can always add to a position at higher levels if the company is performing beyond expectations.
• ALWAYS USE LIMIT ORDERS WHEN BUYING OR SELLING. Market makers are in business to make money on trades, and they are ruthless. Small and Micro caps usually trade less volume than larger stocks and more volatile to both the upside and the downside. Market makers can fill a market order to the detriment of the investor. Even if you are willing to pay the current market price, please place a limit order. The next generation of direct execution brokerage firms will help eliminate the predatory practices of market makers. However, stocks on the OTC Bulletin Board do not trade within the electronic systems. This allows investors to bypass market makers.
• NEVER PLACE A MARKET ORDER WHEN A STOCK GAPS UP OR DOWN AT THE OPEN. A "gap" occurs when a stock opens at a much higher or lower price than it closed the previous day based on some news or event. When market makers have market orders for a stock at the open, they will often take a stock up or down and fill market orders at extremely exaggerated prices. Market Makers have been using gaps to profit from investors for years. Generally, if you want to buy or sell the stock, placing a limit order between the prior day's closing price and the opening gap price is recommended.
• DON'T BE AFRAID TO ADD TO A POSITION DURING AN UNFAVORABLE MARKET. If you have followed the rules and not committed the entire amount you are willing to invest, bear markets can provide excellent buying opportunities. Small and micro cap stocks will generally drift down in the absence of buyers and can drop to unreasonably low levels during bad markets. Profits can often be made when purchasing during those periods of time when no one wants to own the stock.
• SMALL AND MICRO CAP STOCKS TYPICALLY MAKE 90% OF THEIR MOVES IN 10% OF THE TIME PERIOD OVER WHICH THEY TRADE. Before adding to a position, make your best effort to determine that the company is still on track to execute its business plan. Don't be afraid to pick up the phone and contact the company directly if you have questions or concerns about developments or recent news.
• TAKE PROFITS WHEN A STOCK IS MAKING A DRAMATIC MOVE HIGHER. There is nothing wrong with locking in a profit when your stock is climbing the charts. One effective and recommended strategy is to sell 50% of your position after a stock doubles in value. This allows you to recoup your initial investment and hold the remainder for the long term with no risk. However, don't sell your entire position. You never know how high a stock will go, so don't lose your entire position too soon.