pair trade small / micro cap

Does anyone have any success with in this space?

It seems that quants / HFT have taken over any opportunities in larger cap stocks. Obviously you can, and people do make money here (I know people on this board do) but its tough.

I was thinking the small cap area might be easier because HFT/Quants can't trade big size and thus its not profitable for them.

Would like to hear people's thoughts on this! Finding something that works here would be great but not ideal as you can't size up forever but starting out with a relatively small account. It might make more sense.

Thoughts?

 

Anyone?

I'm thinking stocks under between 75m - 150m market cap.

Probably get hurt on bid / ask spread in less liquid names, but at least the opportunity wouldn't be immediately taken away by the big guys...

 

if you think that hft(and their common tactics-subpenny you,withdraw orders etc) does not exist on small\slow\low volume stocks-you wrong. they will kill you over 100 shares of $1 stock

 

Thanks for your reply. So it's best to pair trade liquid stocks and stay away from low volume names. What about holding long term and not trading them short-term? To go for a larger % gain on the trade that will offset getting screwed on the entry / exit?

 

The irony is that most HFT's are NOT in the large cap space. They are in the small caps and the illiquid names. And most HFT's I'm aware of only trade 100 shares at a time. It's not like they are trying to move size. They try to make millions of 100 share trades a day.

 

Thank you. this confirms my observations. as for what's best-the best is what's you can trade profitably without too much stress on you and your money. very simple

 

micro caps are one of the least efficient markets out there and offer a great opportunity for an activist investor. here's some research i've done.

http://microcapbargainhunter.blogspot.com/

 

HFT will go for any big or small cap, my quesyion is why you think HFT have taken away the "edge" ?

 

I try not to think because it hurts but....

The problem with small cap stocks is that they move on their own.

The big caps are mainly influenced by the economy. Ever hear the term “A high tide rises all boats” ?. So if you are trading pairs with large cap stocks then they all move in similar ways. If the indexes tank most large caps will tank. The spread between the pair will stay within range and you are only trading for the spread difference.

Small cap stocks are influenced differently. They are driven by individual fundamentals and contracts. You can argue that there is more opportunity among small cap stocks but there is also unlimited risk that offsets the risk to reward ratio.

 

If you want a easy spread to trade try feeder cattle vs. live cattle.