Why I Trade Small Caps.

Good morning,

One of the questions people tend to ask me is why I am currently so focussed on the UK small caps. It's not fair to say that I don't trade medium and large cap companies as well, but my biggest successes have come from investing in companies that have very low market capitalisations.

My reasoning behind this is that smaller companies are overlooked much more often than larger companies. This could be simply due to the restrictions on many funds from investing in on the AIM and exposing themselves to the smaller companies that float there, but it also comes down to other factors relating to liquidity (the ease of buying and selling a security) and position weighting within the fund.

It's therefore clear that as private investors we are able to take advantage of this anomalous area where the professionals don't take as much interest. I have found that my stock picks that were the most successful within this area were those picked based on support lines and fifty-two week lows within stocks that are sub penny shares with market capitalisations between five and eight million pounds.

This isn't to say that I haven't made mistakes; I have made many. In fact, I'm going to write about my biggest mistakes in separate posts. Nevertheless, my best trades have always been within these small cap companies and my biggest mistakes have always been when I break my own rules and or move out of this market capitalisation zone.

Now, just because this has worked for me, doesn't mean that it will be a good strategy for everyone to employ and I implore you to do your own research and test the waters perhaps with a demo trading account to decide if you are more of a short term or long term holder.

The Global Economy

Good evening,

I think that before embarking on a quest to make a position in the stock market in any capacity, be that long or short, one needs to have an opinion on the global stock markets and the worldwide economic situation. 

I've had two opinions on the global economic climate since I started actively managing my portfolio: 

The first opinion that I held adamantly for several months was that the global markets were destined to capitulate and sink again as they did in 2008/9.

The second opinion (one that I still hold) is that the global economies aren't necessarily in a great position overall, but that the the stock markets will continue to rise as a result of external pressures. 

My reasoning behind moving from the first opinion was that I very quickly realised that it's become very popular to take the counterargument when it comes to discussing the stock markets. Now, what I'm about to say doesn't really apply to AIM (where I primarily invest), but it does hold true across world markets:

The market is like a super-computer that processes all of the information in the market and then comes up with an appropriate price as close to the "true value" of the market as possible.

Therefore, if the stock market has been rising for a week, it's not necessarily true to say that the value within that market has increased, but that the price has. 

This is important in my opinion, because it's the main driving point behind my current market opinion (since January 2014). I am a believer that the global stock markets will continue to rise because the external interest rate factors have made the stock market the only place where a return above inflation can be made. In short: value has not necessarily increased with this bull run of the stock market, but prices have.

As a traders we primarily profit from being able to determine the effects on the price of an instrument and not the value (although value investors do certainly exist and I have a lot of respect for them). It's because of this that I'm comfortable with still going long on the S&P 500 and the FTSE 100, but nevertheless, I believe that we have to be very careful as investors and traders not to become pulled in too much by the current bull run.

For example, jobs and housing figures in the US has only recently began to deliver more consistently positive results and yet the markets have continued to rise.


To conclude, it's in my eyes that the current bull run is sustainable and that we could likely see further increases in the major stock indices. I am therefore bullish on price increases, but not necessarily bullish on the value added to our major markets. Low interest rates that seem likely to remain low as a result of uncertain macro-economic conditions worldwide. This combined with the environment created by quantitative easing makes the bullish pattern seem stronger in my eyes.


Good luck and good night.

An Introduction

Good morning everyone,

I don't want to bore anyone who actually will end up reading this to death, so I'll keep this reasonably brief and to the point:

I am nineteen year old male who left my grammar school education in the UK after having done some (decidedly mediocre) A-levels and decided to try and make my own way as a trader and investor on the Alternative Investment Market (AIM). I would love to be able to work for an investment management firm or an investment bank in the future - however I'm somewhat doubtful that a guy with no university degree would be considered. Regardless, I plan to move to derivative trading over the the next year or two as I've become more confident with trading raw equities over my (almost) full year of trading.

I had been active in the stock market in my final year of school and having fallen utterly in love with the mechanisms of the market and the excitement it can create, I decided that there was no harm in trying to trade/invest full time while I accumulate my singing exams - fortunately for me I have very supportive parents who were accepting of this.

This is going to be a pretty generic blog with some of my technical analysis, macro ideas and opinions, what I'm buying and and my reasons behind those decisions, etc.

As you can undoubtedly tell, I have no licence to give financial advice and therefore anything I write should be seen as merely a view point and not a symbol to get your wallet out.

Good luck trading!

The Masked AIM Trader