Drive-By Strategy In Small Caps

Recently, I tend to approach trading small caps for the third party account as a drive-by shooting or a holdup. You need to come with speed and execute the trade plan as fast as possible. Maybe one could also compare it to robbing a jewelery store. You know the time it will take the cops to turn up once the alarm is set off. When you trade small caps in big enough size you always set off someones alarm, believe me.

Anyway. I say this because I knew this trader at Goldman who said that he had this hedge fund client who made his life hard by calling him, asking for a quote of 20k, 30k or 50k shares in stocks that had traded maybe that much on a daily basis. He'd either lift or give and then be gone. The trader at Goldman would never know is the client holding on, selling elsewhere, buying more elsewhere.... That hedge fund knew, that as few people as possible know what you are doing, the better. Because the other guy will always try and fuck you, by front running or short squeezing.

I also remark it because when you trade a small cap, or even midcaps, you have traders, market makers, or even the company itself whose playground you are suddenly "intruding" in. The traders or interested parties have a way of finding out via their contacts at banks, who is doing the buying. But it takes them a minimum of several hours or couple of days. So if you can be in and out, while giving the impression to still have an interest, that's better for you.

I remember reading a book; "An American Hedge Fund" whose manager often saw large moves against his position as soon as he'd finished buying or selling. That made me think: this guy was definitely being watched. And it really often is like that. The market isn't as opaque as people often think.