volume on microcaps

Discussion in 'Trading' started by trading1, Oct 27, 2006.

  1. Given trading volumes thin on some stock, is there any type of guideline on the maximun size trade thats realistic, say the daily trading volume was 10 000 shares at $5 ea. Whats a feasible size trade. I've been counting on about 2% of daily trading volume. Any suggestions appreciated.
  2. dac8555


    if you want to throw your money away....just mail it to me!

    keep prices above $10...and liquidity abouve 200k per day. those are MINIMUM.
  3. Trading microcaps carry a substantial risk. Let me say that again, substantial risk. You can lose A LOT of cash. Once again, A LOT OF CASH, LOST. Sure there is lots of upside, but there is also lots of downside. How much downside? Ever read about the Great Crash of 1929, WORST. You could be reliving it yourself trading these things.

    So with that out of the way. You need to sneak into these stocks and sneak back out. Tip-toe. Depending on the volume, you might be tip-toeing in and out 100 shares at a time with limit orders. It may take you all day to build a position. Sitting there and seeing them execute 100 at a time.

    Remember, everyone who trades that stock will be watching you on the Level IIs. They will see your order come in and go back out. Since everything operates so slowly, they will try to take advantage of you.

    My advice is to stick with quality. Stay away from the microcaps. If you want some exposure to microcaps, why not just use an ETF?
  4. Great for investments, terrible for trading.
  5. If you are not a day trader, micro caps can offer good profit opportunities. I trade them all the time. Risk exists in all kinds of markets, your stops and position size should be adjusted to handle that.

    One of the ways to look at liquidity is by average dollar turnover in stock.

    I use the following formula to screen these stocks

    AVGC20 * AVGV20 >= 250000

    AVGC20= average price last 20 days
    AVGV20= average volume 20 days
  6. I agree with the advice and comments being made, I came to the conclusion of a similiar formula, I'd been using 200 000, and using the avg of the last 60 days. I'm not really interested in trade sizes values under $5000, I might try and iceberg the orders in
  7. If your pockets are deep enough, you could try to "muscle" a micro-cap stock upward until you find a huge buy-stop order that you can sell into in order to get out of your position. Look into it sometime!