The secret to small-cap trading fortunes

Monday, 30 September 2019
Melbourne, Australia
By Ryan Dinse

  • No one knows a thing!
  • Don’t fight the market
  • The real key is money flow…

Ryan Dinse here, I’m covering for Bernd who’s off on holiday.

Rest assured, he’ll be back soon…

Today I want to do something different and ignore all the topics Bernd covers so well.

Because, although it’s fun to read about all that ‘big picture’ stuff, I actually think it’s not so important for doing the one thing I love to do most in the markets — and that’s making big money.

If you know me, you’ll know my beat is small-cap stocks and cryptocurrencies.

The riskier end of the market, that’s for sure, and not places for the faint of heart.

But the flip side is that it’s also the place where exponential gains can be made, too.

If you’ve ever dreamed of finding the next Afterpay, the next Fortescue or the next anything, it’s the small-cap space you need to go to.

But it’s not easy. As I said, the risks are high.

So, how can you invest here with any kind of confidence that you’re not just gambling your money away?

Today, I’m going to reveal the secret to doing just that…

First, the markets…

Markets

Over the weekend, the Dow Jones Industrial Average closed down 70.87 points, or 0.26%.

The S&P 500 closed down 15.83 points, or 0.53%.

In Europe the Euro Stoxx 50 index closed up 13.70 points, or 0.39%. Meanwhile, the FTSE 100 gained 1.02% and Germany’s DAX closed up 92.40 points, or 0.75%.

In Asian markets Japan’s Nikkei 225 is down 98.70 or 0.45%. China’s CSI 300 is down 0.45%.

In Australia, the S&P/ASX 200 is up 12.40 points, or 0.18%.

West Texas Intermediate crude oil is US$56.01 per barrel. Brent crude is US$61.94 per barrel.

Turning to gold, the yellow metal is trading for US$1,494.00 (AU$2,211.37) per troy ounce. Silver is US$17.46 (AU$25.84) per troy ounce.

One bitcoin is worth US$7,970.01.

The Aussie dollar is worth 67.58 US cents.

No one knows a thing!

Consider this…

If you had invested $10,000 in George Soros’ Quantum Fund in 1969, you would’ve earned $40 million by 2000 — at an annual growth rate of 30%.

While most people trading small-cap stocks think that finding those mythical ‘10 baggers’ is what matters most, you can see that simple system outperformance is actually more important.

Now, people tend to think Soros achieved this record by ‘seeing’ the future before others did.

This is only partially true…

The investing method of arguably the 20th century’s greatest trader, did involve making predictions.

But crucially, Soros didn’t rely on them.

His edge as he saw it was that — unlike the pompous types on Wall Street — he knew he didn’t know everything.

He still tells anyone who will listen to him about his own fallibility. And how he always might be wrong.

Which led him to see investing like this:

The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.

George Soros

So how did Soros then know when a trade was ‘right’?

Simply put, the market told him which theories were correct — and which weren’t — by moving a certain way.

Soros would rely on the market to tell him he was right. Rather than trying to argue against it.

I provided this short insight for two reasons.

First, it’s the fact that as far as I’m aware, none of us are smarter than George Soros. So, predicting the future would be even sillier for us than it is for him.

But secondly, there’s also a major lesson in how smart traders invest.

It’s this…

They let the market make them money. Rather than trying to make the markets make them money.

It’s a subtle change of perspective with big consequences.

Let me explain how it works…

Don’t fight the market

Think about investing in the stock market in general.

People tend to think it’s pretty complicated. There’s so much to think about and consider.

But in reality, all any individual stock can do is one of three things. 

Go up.

Go down.

Or go sideways.

That’s literally all a stock price can do! But hang on you say, you need to know in advance which direction it’s going to go?

Exactly right.

Which brings me to the second point — from the ‘what it can do’ to the ‘why it does it’.

Why does a stock move one way and not the other? Or why does it stop moving up and start moving down? Or vice versa.

Again, this has a simple answer…

But as usual, the investment industry overcomplicates things…

Some will point to the economy, others will say its psychology, some will say its specific fundamentals, yet more will say no one really knows, and some will blame politicians, those in power…maybe even the illuminati!

The academic theory says that markets are always efficient. That is, current stock prices reflect all available facts, so there’s not point trying to beat it.

If you’ve lived through a market boom or market bust, you’ll know the boffins clearly have that one wrong!

At the other end of the spectrum is the belief that the stock market is entirely manipulated.

The most extreme manifestation of which can be seen on the pages of trueconspitacies.com.

Here, the entire financial system is one big mechanism of control for the elite.

Though rather than the mythical illuminati, it’s the powerful central banks that call the shots with their control over the money supply.

As the dynasty founding banker, Mayer Rothschild is alleged to have said in the 1800s:

Permit me to control the money supply of a nation and I care not who makes the laws.

Of course, all these things have an effect.

Facts change outcomes. And powerful people will always try to control things in their own interests.

To think otherwise is naïve.

But here’s the thing…

You don’t need to pay attention to any of it to know if a stock is going up, down or sideways.

You read that correctly.

None of that matters if all you are interested in, is trying to trade the future direction of a stock with a high degree of probability at a point in time.

The real key is money flow…

Watching the money flow around a small-cap stock tells you everything you need to know about where it might be headed.

It sounds too simple, I know.

But in reality, it’s true.

Especially in small-cap stocks.

Price direction and volume are two crucial signals you can use to your advantage. They tell you:

  • Is money trying to sneak in?
  • Is it trying to get out?
  • Is a big event near?

Don’t try and look for a reason right away, usually the ‘why’ of a price move comes much later.

But 9/10, money flow will tell you to invest well in advance of the ‘real’ reason.

This process is key to my premium small-cap trader service — Billion Dollar Breakout Trader.

It’s a service that tries to find the fastest growing small- and mid-cap stocks with the biggest potential.

And it does this by simply watching the tell-tale signs of money flow.

I spent almost two decades developing this system. And I made every mistake in the book to create it!

But through trial and error, back-testing and years of full-time live trading, I know it works. And in the right conditions, the results can be explosive.

Like this year — 2019…

As you can see below, my current trade list is looking pretty good right now:



chart image
Source: Port Phillip Publishing (24/9/19)
Click to enlarge

I’ve blanked out the stocks for obvious reasons here.

But you can see that nearly every single trade is in profit currently. With one six-month old trade up 400% (now 500% as at 30/9/19!). And it’s still an open trade. Maybe it will even turn into one of those mythical 10 baggers?

Of course, I’ve made losing trades, too. No system is fool proof and losing trades are a normal part of every trading system. If you can’t accept that, then you can’t be a trader, simple as that.

But by watching the money flow, you can cut your losers fast, and stay on your winners as long as the money is coming in.

Next week, I’ll have the chance to explain more about this process, but today I just wanted to give you a flavour for my method.

And show you what’s possible when you can surrender your ego and just trade the market how it is, not how you think it should be.

Good investing,

Ryan Dinse,
Editor, Billion Dollar Breakout Trader