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'Take A Step Back': Small-Cap Trader Shares Strategy, Methods For Success

July 12, 2020 11:00 am
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'Take A Step Back': Small-Cap Trader Shares Strategy, Methods For Success

Benzinga has built an incredible brand and following, attracting the use of professionals and novices in its broad effort to democratize the financial markets.

To help inspire investors, Benzinga reporters sat down with Cameron Newell to talk about the strategies he’s employing during these volatile markets. The following is the interview that transpired.

Benzinga: How Did You Learn?

Newell: When I was learning, I would find anything on YouTube. I am a visual learner and I learned a lot from just watching.

I’d search “How To Day Trade” and consistently watched different people, not any one person.

I was always open to new opportunities, strategies, and ideas, digesting what others do, and then creating my own concept of trading.

What’s helped me learn is my consistency of wanting to learn and evolve, shifting to new markets, and thinking about what I did right and wrong.

But, and I tell this to a lot of people when you’re starting with a small amount of money, you’re learning small. As you grow your account, you’re proving to yourself that you’re able to grow and whatever the strategies, concepts, and processes that you’re using are starting to work, even though you’re not being paid big dollars for what you’re doing.

If you start with a bigger account and you pay the market tuition of $100,000 that could have been $1,000 and you could have learned the same thing, except you’re down way more money.

Why not start with a smaller account and learn?

What Inspired You Trade Small-Cap Stocks At The Outset?

As a small trader, you can’t make much money in large caps.

Let’s say you’re a college kid with a maximum of $10,000. I mean, you’re probably sitting pretty to have that kind of money coming out of college, but you know, I couldn’t see myself making a living trading Apple Inc (NASDAQ:AAPL), Google Inc (NASDAQ:GOOGL), Amazon Inc (NASDAQ:AMZN), and Facebook Inc (NASDAQ:FB).

When I saw stocks moving hundreds of percentages every day in the small-cap world, I saw myself making a living doing this.

What’s Different About How You Trade Now?

As I grew my account to, you know, $150,000, I started to realize, I had to start trading more and more liquid stocks. You need to evolve into more liquidity, more volume.

One of the worst trades in my career was when I was trading with a $500,000 Robinhood account and I wasn’t pulling any profits out. I got stuck in a small-cap and got so much slippage that I lost $60,000.

That was an eye-opener for me; if you don’t have liquidity, you can really hurt yourself.

What Is An Important Aspect Of Trading That’s Often Overlooked?

Size is one of the most important things as a trader. You know, emotionally, psychologically, you have to be able to wake up every day and feel comfortable.

You can’t come on the screens every single day and feel on edge.

If you’re not comfortable with risk, you’re going to feel it. I learned this the hard way when I blew up almost half my net worth back when I was trading 6-to-1 leverage. I had this pit in my stomach, basically thinking at the time, how much money I can make when I buy this stock and I never once really looked at the downside.

I wasn’t weighing my risk at all and so you have to always weigh both risk and reward.

How Do You Maintain Comfort While Trading?

As I grow, every $100,000 I make, I pull out $75,000 and then bump my buying power by $25,000.

That creates a level of comfort. As I make money, I prove to myself that I can handle the size and liquidity.

So, it’s like I’m paying myself for the good things that I’m doing. I’m giving myself credit for what I’m doing and, on top of that, I’m raising my buying power to create more opportunities and potential.

There have been times, however, where I don’t want to raise my buying power. That’s when I need to take a step back. If you’re uncomfortable, then you’re not in the right headspace to trade.

You shouldn’t feel on edge. It’s not healthy for your well-being, friends, and family.

Name One Impactful Experience That Changed The Way You Trade

Stamps.com Inc (NASDAQ:STMP) changed my course.

I’ve never seen anything like that happen to a blue-chip. It went down like 50% and I’m thinking, you know, it’s got to bounce.

I take one payroll cut. Then another there. Now I’m starting to size in at $115 and took a pretty big loss there. And then, I’m like, it’s got to bounce off $100 and I lost there.

By then, my mental capital was over. I was completely exhausted and down like $75,000 on this name. Back then it hurt a little more and I mean I still really don’t get it. It seemed like it was a fraud and they were pushing out numbers that didn’t make any sense.

What’s Your Go-To Strategy?

Sympathy plays.

With sympathy plays, the farther the lead runner goes, the better it is for the second, third, and fourth. It’s awesome because I’m just waiting for the sympathy plays behind to catch up because people are going to see the leader and then start chasing the backside of these other runners for whatever reason.

There are so many sympathy plays when things are up 1,000% or so. I don’t know why. It’s just a natural human reaction where people just find something that’s similar and chase.

Long Term Vision?

Trade like a hedge fund, but not be a hedge fund.

I’ve talked to people who manage hedge funds and it sounds like a nightmare. I mean emailing clients back, having all that stress on you. That’s not financial freedom.

My vision: I want to be able to enjoy life, you know, have financial freedom, and just grow my company to help a lot of traders.

I want to start the next chapter of my life, which is to teach other people to learn my strategies. This whole retail world is so new. Everybody’s on their phones and people are opening up brokerage accounts. That’s better for you, me, everyone because it creates liquidity.

I hope that in the next 5 years, I can be a better teacher and mentor because I remember back to my college days where I was kind of alone on an island and I didn’t know how to reach out, what to say, how to get help.

To learn more or get into touch with Newell, click here.

For the latest in financial news, exclusive stories, memes follow Benzinga on Twitter, Facebook & Instagram. For the best interviews, stock market talk & videos, subscribe to Benzinga Podcasts and our YouTube channel.

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