Lesson of the week!
I recently talked about differences in the size of market caps, but today I want to go more in-depth and talk about how to trade them and discuss volume analysis. The reason I want to talk about that, in particular, is because I see some confusion when you guys are trying to understand the difference between bounce shorts and consolidation.
We will look at $MYSZ as our recent player because this stock came out of nowhere, trading about 20 million shares after not having that kind of activity for months.
When a ticker like this has that many shares, we can assume they are financially weak as we see that they finish in the red.
Come morning, there’s a spike that you could trade as a potential bounce short, but after watching it consolidate for hours, this ticker starts trading in a stepper pattern.
A stepper pattern can easily gap up, and because it is holding 20 million shares, this $1.30-$1.40 area becomes a solid support that is hard to short down. Even though there’s 70 million in resistance near $3, I’m biased towards the long side, but it could go either way. As we move on to $CRON, I see the need to build a swing short.
That may be confusing to some as it takes days to build your positions and even longer for it to drop.
I expect that $CRON can break the support back near $7, but it’s going to take time. Another large market cap to touch base on is $TROY because of the decent losses from trying to short the overextended gap down. Keep in mind, a lot of these patterns don’t fundamentally fit when you’re working with such a big cap.
We’ve talked before about the similarities with crowded trades, like $AIO. Bigger market caps have their resistance and support working in their favor, whereas smaller caps can break out of your support level, and you lose your time to cut losses.
When smaller market caps trade massive volumes, they may hold but not to larger ones' support level.
And that's the beauty and the beast with large market caps.
They drop slowly, unlike day-trading, and if you want to swing them, you have to be patient. Again, break your position into parts if this is the way you want to go. This approach will take several positions over several days while being intertwined with patience and attentiveness. Knowing how to navigate market caps will be one less thing putting pressure on your profits.