Tactics for the small trader

The small trader has an unique advantage against the big boys.  Yes, you read it right: a unique advantage.

What is it?  You cannot move the markets.

You are so thin that none of your actions is significant to the market. You can invest on any security and (unless you play small caps) you won't move the price.

Other (big) boys, on the contrary, have to be very selective when trading.  As they handle a large amount of money, they cannot put all of it in a single security, because they would move the market.  This means that if they buy, there will be a point were their demand will surpass the existing supply, and (because a well-known economics law) the price will go up. 

This movement can indeed be very large, but if they get excited and decide to make the profit immediately, they would notice that the price start to drop as soon as they start to sell.  The reason for that, again, is that they are too big for that particular market: they are creating a lot of supply for the same demand, and therefore the price must go down.

None of these are your problem. You are so thin that you can put all your stake in a single trade, and be totally insignificant to increase significantly the demand or supply.

Another advantage that nowadays you have is that you have access to exactly the same information the big boys use to have in a privileged basis.  The only problem is that you need to be able to process properly the information.  Indeed, incorrectly interpreted, this information can mislead you.  Also, you have to be very cautious.  The misinformation abound in the market. 

For example, a smart player can purchase a large amount of a stock based in somewhat privileged information and may wait until the stock moves in his favor. When he has the profit he wants, he may praise the stock in several ways (newsletter, web pages, forums, etc.) to create the demand needed to exit without affecting the price down.  If you believe this nobody-knows information, and purchase the stock, you will be artificially supporting the exit of the smart player, and end up holding the bag. Be careful. Indeed, all of the unsolicited e-mails praising small caps stocks are within this category.  Never play a trade based on them.

In this section, we will describe some useful tactics to have in mind as a small trader:

Options: the quickest way to win

Trend tactics

Event trader tactics

Good trading!