Micro-cap Movers and Shakers From Tosh Lines, 19th January 2020

As I mentioned in my trading rules last week, I will be spending less time on social media and more time on further educating myself. I think there is always room for improvement even if you think you’re good at something.

As such, I have begun reading the books I received from Santa, the first being the well-known ‘Market Wizards’ written by Jack D Schwager. It features interviews with several of the best Traders to have walked the earth and from what I’ve read so far, it includes some really useful information.

The first interview covered Michael Marcus, a Commodities Trader who amassed a fortune of $80m. Not bad, I guess this guy is worth listening to.

Like when most people start trading, he blew his account many times before he finally became successful. He attributed his losses to not educating himself properly and diving into trading commodities without having a proper understanding of what they were about. His lack of education also led to him making mistake after mistake, such as using his entire trading pot on a single trade (which he lost and heavily).

Despite the large losses though, he didn’t quit, and he persevered with his dream of being a Trader. A trait which in my opinion, all Traders require. He eventually made the decision to educate himself properly on commodities, and did so by reading relevant books and market subscriptions. To fund his next attempt at succeeding in the trading world, he cashed in a life insurance policy ($3000) and as a result of his newfound education, he had some success, accumulating $30,000.

However, he then made further mistakes, borrowing $20,000 from his mother, and again, placing his entire pot on a single trade (he lost heavily, his $50,000 plummeted to $8,000).

As a result, he decided to find a job, and found one as a Commodities Research Analyst. He continued to trade on the side, again borrowing money from his family, and again losing more than he was winning.

It was when he found two mentors at work, one being the legendary trader Ed Seykota, that he his outlook finally took a turn for the better. Ed taught him all about trading principles, and as a result, he became hugely disciplined, something he wasn’t before. He began waiting for the best intraday set ups and setting tight stop losses. His trades either took off and made him money or he was out for a small loss. And from that point onwards he grew his account exponentially.

He thinks the secret to success is cutting down the number of trades you make (not overtrading), and the best trades are where you have all three things going for you – fundamentals, technicals and market tone. Firstly, the fundamentals should suggest that there is an imbalance between supply and demand which could result in a major move. Secondly, the chart must show that the market is moving in the direction the fundamentals suggest. Thirdly, when news comes out, the market should act in a way that reflects the right psychological tone.

As such, if a trade meets all of his criteria, he goes in 5-6 times larger than on trades that only partially meet them. Good risk management and position sizing are important factors.

The remainder of his interview highlighted some great advice for new Traders:

  • A chart breakout is perceived by a whole universe of Traders so you have to be fast. You have to ask yourself who is left to buy?
  • Never bet more than 5% of your total capital. That way you can be wrong 20 times before you lose all of your money.
  • Use stops as it commits you to selling at a certain point.
  • If you become unsure about a position and you don’t know what to do, just get out. You can always come back in. When you are out you can think clearly again.
  • Hold onto your winners and cut your losers. If you don’t hold onto winners you won’t be able to pay for the losers.
  • When talking to others try to take their information without getting overly influenced by their opinion.
  • Trading involves an intense personal involvement; you have to do your homework.
  • A good Trader can’t be rigid, you have to be open to seeing anything.
  • Gut feel is important but so is courage. Courage to try, courage to fail, courage to succeed, courage to keep going when the going gets tough.
  • Successful traders have a balanced life, they have fun outside of trading. Otherwise you end up overtrading or getting excessively disturbed about temporary failures.
  • Keeping track of equity is a good idea. If it is trending down that is a sign to cut back and re-evaluate.
  • Trading is emotion. It is mass psychology, greed and fear.

And finally, when asked what made him different from other Traders – he said that he was open minded and able to take in information which is difficult to accept emotionally, but he recognised as true. For example, when he had a bad losing streak, he would stop trading for a number of weeks (unlike others who couldn’t stop and kept losing).

In conclusion, it was a fascinating read, and one which gave me great comfort. The fact he blew his trading account several times whilst he was learning the ropes, yet had the courage and perseverance to not quit is something all new Traders out there and also unprofitable Traders should take note of. Do not give up hope, keep studying, keep working hard and keep striving to reach your goals.

And on that bombshell, let’s take a look at the past week in the micro-cap market.

The FTSE AIM All Share closed at 974.85 almost bang on where it peaked last year (974.88). It actually broke past that resistance point on Friday climbing to 976.24 before dropping back. A sure sign that AIM is well and truly alive. I continue to be dumbfounded by the comments on social media that AIM is dead. I’ve no idea what these people are looking at but it can’t be what the rest of us are seeing.

While we didn’t have a plethora of 100% spikers this week, we still had a decent number of micro caps making good gains.

Zibao Metals (TICKER: ZBO) surged 215% from a low 0.30p to a high of 0.945p, Egdon (TICKER: EDR) soared 86% from a low 3.44p to a high of 6.4p, TheWorks.co.uk (TICKER: WRKS) spiked 52% from a low of 29.54p to a high of 45p, the Barkby Group (TICKER: BARK) shot up 51% from a low of 28.5p to a high of 43.1p, and Bigdish (TICKER: DISH) moved up 36% from a low of 2.35p to a high of 3.20p.

Five very good opportunities to make a decent return. I personally didn’t trade any of them as I’ve been focusing a lot lately on bottom picking. Nope not on Tinder, I’ve taken a sabbatical from picking lonely women’s bottoms, I’m talking bounce plays from those lovely huge drops we regularly see across AIM.

At the back end of last year, I traded TICKER: TRX when it tanked to 0.45p and bounced back above 1p, and I also traded TICKER: XSG when it tanked to 0.85p and bounced back to 1.89p. Both plays offered an opportunity to make over 100% (for those Traders who were patient enough).

And these types of bounce plays keep offering themselves up. What was it the legend Warren Buffet said…”be greedy when others are fearful” …well I believe that rings true when a micro-cap tanks on bad news. The dust usually settles at some point, and what I find is the first day is the over-reaction, the second day is the reaction to the first day, and thereafter the market decides if the huge drop really mattered or not.

Some of the most recent bounce plays offering good opportunities to scalp a decent return were TICKER: CBUY which tanked last week and finally bottomed on Monday at 0.35p. The Inverted Hammer candlestick on the Daily Chart was a good buy signal, as was an upturn in the RSI and strong buying volume on Tuesday. It bounced back up to 0.67p, an increase of 91%. It has subsequently dropped back since, perhaps offering a second opportunity.

TICKER: LEK which tanked on Tuesday, bottoming at 2.33p, rose 40% over the following 3 sessions to a post-drop high of 3.26p. The Inverted Hammer candlestick on the Daily Chart was a good buy signal, as was an upturn in the RSI and Stochastic indicators. If the decent buying volume continues, it should keep going higher.

For any new Traders wondering how you catch a bottom, the truth is, it’s never easy, unless you’re on Tinder that is. I’ve caught more Tinder bottoms than Ben Stokes has caught edges in the slips.

In a bit Tosh

Author: Tosh Lines

I am a full-time trader who focuses on micro-caps, a freelance writer, and when I am not staring at the screens I am most likely climbing 3 mountains in 1 day for charity 

Please note: I have a new Twitter account @_TradeTheTicker please give me a follow!

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