This is a conversation I had today with a trainee about doing better in non-small-cap stocks. This mentee had previous success with small cap stocks while in college. During an end of the year review he made some observations and wanted to discuss them with me. Young Small Cap is an example of the very best of the people I get to work with as a mentor. Here is our exchange……

Young Small Cap: my avg pnl was at least double what it is now when I only traded small caps

Bella: you are a little bit of a wuss trading the stocks in play, no?

Young Small Cap: yup

Bella: 🙂

seems like that is the first thing to think about no?

Young Small Cap: well..it depends what you mean by that

i am not a wuss about getting involved w/ them

i am a wuss when it comes to sizing up in them and holding some for the big move

Bella: that is matter of understanding your a+ setups and setting rules for how big you MUST be in those set ups, no?

Young Small Cap: yup

i find it easier to hold 5000 shares of a 2$ stock for a 20cent move than holding 1000 shares of a 20$ stock for a 90 cent move

Bella: hmmmm

prob b/c you have prepared your mind to believe more in the 20c move in the $2 stock?

Young Small Cap: yeh because thats all i traded for 2 years

i never traded a higher priced stock before i came to smb..i did trade those 5-15$ stocks on ocassion tho

and always did quite well in them

i like the slow moving stuff

Bella: how do you get yourself to believe in the 90c move as much as the 20c move?

Young Small Cap: do it 500 more times 🙂

need to think about it more like a swing trade

instead of watching all the ticks

Bella: in fairness it is much harder to hold for 90c than 20c with a $2

many more variable w the former

Young Small Cap: yes..my trades were much more hands off in stocks under $5

Bella: yeah

Young Small Cap: dont need to manage them nearly as much as you do w/ higher priced stocks

Bella: seems like

1) you need more reps
2) you need to firm up your playbook w the plays that make the most sense to you
3) you should slowly add size to your best plays

Young Small Cap: yup..it also seems like i need to take more advantage of sitting next to shark

its very wierd..and while its not neccesarily that important, its an observation

when other people on the desk are really struggling i am generally doing very well

and when other people on the desk are doing great, im doing OK but underperforming relative to them

Bella: yeah, the thing about Shark is that he has consistently done more work than anyone else on the desk. and he has done all the work on creating his playbook and thinking about his best trades. that cannot get lost.

Bella:
so sit next to him and that is great. but better to work and review like him and think about your trading like him

do that and maybe he will talk about sitting next to you 🙂

Young Small Cap: right..i mean. i would consider these good problems to have because i know i can fix them

i am still very consistent

Bella: honestly if you can make money 4/5 days then you can fix all the above

Young Small Cap: yup

Bella: if you were losing 3/5 days i would tell you to pick up a new sport

Young Small Cap: hehe

this month only two gross negative days so far

Bella: yeah i like that!

it is very powerful to build from a positive trading base

progression: lose money, loss less, flat, make $ consistently, make $ consistently with more plays, size up in your best trades

Young Small Cap: yup, i will keep at it and work on my playbook with in play stocks so i can do better during market cycles like this when i dont trade small caps

i just need to remember what its like to have a $1,000 day a minimum of once a week

im sure eventually i will start to make much more in higher priced stocks vs small caps

Young Small Cap: thanks for taking some time to talk to me

Bella
One Good Trade