When trading larger market cap stocks like Microsoft and Apple, you need to employ strategies and trading rules that may be different from how you may play some of the smaller cap stocks. When playing smaller cap you need to look for those that are displaying high volume, you don’t need to search for them every day, but you should put a few on your watch list and keep an eye out for any that you don’t normally see. The majority of the time these stocks won’t have substantial moves, which will make it easier for you to spot when one is about to have a break out day. Keep an eye out for any breaking news story on that specific stock or if this is a sector wide movement.
With smaller stocks its also important to keep an eye on what the particular market makers are doing as they can stimulate movement in that issue. Larger institutions and Market makers in the large cap stocks will have much less influence on stocks such as Microsoft and Dell than they do on small caps, as the market trend usually has dominant influence on them. However, in a small cap with a large order can merely keep a stock in a tight range as there might not be enough interest to make it move. Although many market makers and influence stock price in smaller issues it is very difficult for even the larger brokerage firms to direct the trend, although it can occasionally happen. If significant positive news comes out on a stock like Apple and the market is trending up, then even the biggest of firms will eventually fill all their sell orders and the stock will invariably go higher. This rarely happens in the small caps.
Depending on the stock or sector, lower priced stocks give the newer trader a chance to up his position without tying up the majority of their buying power and quite often limit their downside risk. As a new trader it was a psychological boost to own a few thousand shares of a stock as opposed to several hundred of a large cap.