This week's lesson.
Today I want to talk about the importance of market-caps on your decision to trade.
Let’s get started with $SMSI, which looks like a gap-up short as it went from $3.40 to $4.80
This can be a dangerous scenario to get into because the market-cap on $SMSI is over 100 million. If you wanted to go long, you would need a 100 million to inject into the current market cap for the stock to go up 100%. If the stock drops 10-20%, you will lose about 20-30 million in the market-cap. Fundamentally, stocks like this are detrimental to your game because they have negative cash flows and are being pumped up so that more money can be pulled from the investors, which in return, is how the company makes its money.
If they have sufficient cash flows, they are likely to come back, but when you short into this type of gap-up short with no historical chart and low volume, then the ticker is no longer an ideal trade. I often get asked about the minimum volume needed to trade if a stock is up 40-60%.
$OBLN did a reverse split, which means the float is reduced, the market cap has changed.
So has your criteria for the ticker. If we look on the chart at $2, we see 120 million in resistance, so once the stock does a reverse split, the resistance changes as well, and now you have to trades those tickers as completely different charts. You must also go back and find the stock’s current float to move forward. With $OBLN, the current day we are looking at is up 40%, and the total volume is at 1.6 million. However, the minimum volume required by the ticker is 4 million, so you’re now looking at a parabolic that won’t trade well because the long is under 100k, even with resistance.
When you’re trading something with low volume, like a 100k candle, you must be careful that you’re buying into a fake-out instead of a breakout because there’s only limited shares trading. The other downside to this is that you’ll affect the liquidity when you try to get out.