timothy sykes logo

Trading Lessons

Billionaire Investor Eyes Small Caps

Timothy SykesAvatar
Written by Timothy Sykes
Updated 5/17/2024 7 min read
Billionaire Investor Eyes Small Caps Thumbnail

Usually, the biggest Wall Street players are interested in the market’s biggest stocks.

Assets like:

  • Apple Inc. (NASDAQ: AAPL)
  • Microsoft Corporation (NASDAQ: MSFT)
  • NVIDIA Corporation (NASDAQ: NVDA)

But the share prices are out of reach for small-account traders. For example, one share of NVDA costs +$900 right now.

We focus on cheaper stocks because we can buy more shares. And when we load up on shares, we can ride the percent gain for larger profits.

Right now, the small-cap sector is on fire.

The momentum started on Monday when GameStop Corporation (NYSE: GME) spiked with meme-stock hype thanks to the Roaring Kitty Twitter post.

Things turned up a notch when Wednesday’s CPI data showed slowing inflation. As a direct result, major indices broke to new all-time highs. When the larger market is hot, there are more profit opportunities in our small-cap niche.

Below is a chart of the S&P 500 ETF Trust (NYSE: SPY) where every candle represents one trading day:

SPY chart multi-month, 1-day candles Source: StocksToTrade

And yesterday we learned of another catalyst that points toward small-cap escalation:

Billionaire investor Stan Druckenmiller announced his fund significantly decreased its holdings of NVDA stock in favor of the iShares Russell 2000 ETF (NYSE: IWM), an index that aims to measure the performance of certain small-cap stocks in the market.

See the Tweet below for more details:

There’s A LOT of money flowing into the small-cap sector right now.

How Traders Can Profit

This is the PERFECT environment for small-account traders right now.

My students and I are banking! See my Tweets below:

There’s a process that we follow for profits in this niche.

It’s essential to trade with a plan based on this process. The stocks in our niche are incredibly volatile. And unlike large-cap stocks, their future is less certain.

That’s why, historically, Wall Street turned their noses up at small-cap stocks …

But evidently, even billionaire investors can succumb to greedy opportunities when they see a small cap like Faraday Future Intelligent Electric Inc. (NASDAQ: FFIE) spike +5,700%* in less than a week …

See a chart of the move below, every candle represents one trading minute:

FFIE chart multi-day, 1-minute candles Source: StocksToTrade

Small-account traders can play this volatility because the shares (thus far) never spiked above $3.

This is a strategy based on ratios:

  • $1,000 worth of NVDA this week would have bought one share with a potential percent gain of 6% thus far, or $60.
  • $1,000 worth of FFIE on Monday would have bought 25,000 shares with a potential percent gain of 5,700%, or $156,000, thus far …

See the difference?

There’s more meat on the table when it comes to small-cap percent gains. And the low price allows us to load up on shares. That’s why we focus on small-cap stocks.

Now, this niche is still dangerous for traders who fail to prepare.

90% of traders lose. Here’s why:

  • They get greedy.
  • They don’t follow the rules.
  • They try to impose their will on the market.

Maybe they make a few good trades to start. But eventually, the lack of discipline drains their account.

It’s not about how much you make. It’s about how much you can keep.

As a community that’s hell bent on small-account profits, our goal is to trade the best setups and get out before the price action changes.

>> This is the framework that we follow <<

The Next Profit Setup

FFIE is one of the most popular runners in the market right now.

For me and my students, it’s an absolute gold mine! See my Tweet below:

Specifically, it was Jack Kellogg’s #1 pick this week.

Jack is one of my most successful trading students. In a fraction of my career, Jack passed my $7.6 million total profits and is currently sitting pretty at $12.5 million (including losses).

Here’s one of the trades Jack made on FFIE this week, with a starting stake of $56,790:

Source: Profitly

We’re still tracking this runner.

The stock’s been on the move for three days now, and there’s no telling how high it will go!

This is a massive short squeeze. Theoretically, if shorts keep trying to guess the top … And keep getting squeezed … This could spike indefinitely.

For example, in 2021 GME was one of the biggest short squeezes. And shares blew past $100 …

>> Join the next trading live stream to build a trade plan on FFIE <<

I’ll see you there.

Cheers.

 

*Past performance does not indicate future results

How much has this post helped you?

(0 votes, average: 0 out of 5)
Leave a reply
Author card Timothy Sykes picture

Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”