| Buying small cap stocks can be very risky. There are | | | | period of consolidation. So therefore you know that |
| lots of companies that look like they may have a | | | | there is some company-specific news in the offing |
| fantastic future, but sadly many of these companies | | | | which could dramatically move the share price. |
| will ultimately fail to deliver and either stagnate or go | | | | 3. Breakouts |
| bust. So if you are looking to buy some small cap | | | | Breakouts are one of the most profitable ways to |
| stocks, I would recommend you take the following | | | | trade shares generally. However when small cap |
| three points into consideration. | | | | stocks break out of an established trading range, it's |
| 1. Company News | | | | usually even more profitable. This is because on a |
| The trouble with many small cap stocks is that | | | | percentage basis the gains are much larger than on |
| sometimes even with all the excitement and hype | | | | the large cap stocks. |
| surrounding a particular company, the share price will | | | | Also in many ways these breakouts become a kind |
| still fail to take off. In fact it can spend months and | | | | of self-fulfilling prophecy. This is because many of the |
| months drifting aimlessly and not going anywhere at | | | | individual investors will notice this breakout and will |
| all. | | | | jump on board pushing the price even higher. On |
| This is why you should pay attention to any news | | | | small cap stocks that are often lightly traded, this can |
| releases, whether it's the reporting of results or just | | | | result in huge gains in a matter of just a few days or |
| a trading update. It's very often these news releases | | | | weeks. In fact gains of 50-100% are possible on |
| that kick start a share into life so pay close attention | | | | occasions when there's enough momentum behind a |
| to any announcements made by your companies. | | | | particular breakout. |
| 2. Volume | | | | So overall although I wouldn't recommend you spend |
| Changes in volume is a massive clue that a share is | | | | too much of your capital buying small cap stocks, if |
| about to move strongly in one direction or the other. | | | | you do decide to do so, you should take these three |
| In fact this is related to the last point because often | | | | points into consideration because they can prove to |
| these volume spikes come in the middle of a long | | | | be very profitable. |