8 Jan

Why Traders Don’t Know About Small Cap Stocks


Stocks are always moving. However, the typical investor only cares about stocks when their portfolio is plummeting. And while the overall market is going for its third-straight day of bullish action, there is so much opportunity they are missing.

For example,  yesterday I made over $8K in profits trading a company by the name of Energous Corporation (NASDAQ: WATT). Now, most investors have never heard of this small-cap company (that has less than $200M in market cap)… but that’s fine by me.

small caps

My money is just as clean from taking profits in WATT, NETE, VTVT, as they would be if I took profits in MSFT, JNJ, and XOM.

You see, there is an entire world of stocks that’s ignored by mainstream media and financial publications. In fact, many pros won’t even touch these stocks because they are so volatile. However, its that volatility that allows me to make significant profits in such a short period of time.

Now, there are a number of reasons why you don’t hear about these stocks. And to be honest, it’s a shame that you’ve been kept in the dark this whole time… until now.


Reasons Why Traders Don’t Know About Small Caps

  • Analysts don’t provide coverage on small-cap stocks.
  • They’re too “small” to be mentioned on TV and financial publications.
  • Small caps are volatile and tend to be catalyst driven.

Lack of Analyst Coverage on Small Caps

Financial analysts provide recommendations to their clients – most of them tend to like low volatility, coupled with high reward. That said, it’s hard to pitch clients an industry that could go through large swings.

Additionally, banks cover certain stocks, and often give them positive recommendations because they are clients. You see, analysts at banks are inclined to give positive recommendations to some companies. If they don’t provide recommendations, chances are that company isn’t spending a dime on that bank.

However, small-cap stocks are growth companies – solely focused on growing their business and research and development (R&D). It’s unlikely these companies will go out and spend millions on financial services. That said, analysts don’t like to cover small-cap stocks because there aren’t any benefits for them.

Now, that doesn’t mean you can’t make money trading small cap stocks.

Moving on, financial publications and news outlets don’t mention small-cap stocks.

You Don’t Hear About Small Caps Until They’ve Had Explosive Moves…

Small cap stocks are too “small” to be covered by financial publications and the talking heads. The majority of the market is focused on mid- and large-cap stocks…and only a small portion of viewers and readers focus on small-cap stocks.

News outlets want to cover what’s “in play” and moving that day… and larger companies overshadow small caps when it comes to that. Moreover, it may be harder to cover these stocks because they’re volatile and driven by catalysts… and it takes years of trading this space to understand the gears and cogs. 

Small caps are volatile and tend to be driven by catalysts

You’ve probably seen this before…

small cap stocks

If you look at this market view of the top percentage gainers…you’ll notice all of them are “small” companies. Now, for small-cap stocks to see large percentage gains…there needs to be a positive catalyst. When there’s a positive catalyst, it causes buyers to bid up the price. Consequently, shorts have to cover…further driving the price higher. Once it reaches a certain point, the bulls start to take profits, causing the stock to pull back.

That said, analysts, talking heads, and financial writers are less inclined to cover these names.

However, what they don’t understand is the fact higher volatility could mean more profits for traders. It’s very unlikely to see a large-cap stock double within a few trading days. Think about it…for a stock like Apple Inc. (AAPL) to double, it would take years. On the other hand, with a small cap stock, it’s not unlikely to see it double because it had a positive catalyst, such as a press release, earnings, or strategic partnership to name a few.

The diary of a real $ trader,

Jason Bond

P.S. I’m up over $20K this month trading penny stocks (I know it’s only been five days). If you think returns like that are meaningful and want a risk-free way to learn more, check this out.


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