1Identify the catalyst — Check Investegate RNS for the announcement. Is it results, a trading update, contract win, or director buying? Earnings beats and upgraded guidance are the strongest.
2Check the volume — Is today's volume 3x+ the 30-day average? On AIM, even 200K shares can be massive if the stock normally trades 20K. Relative volume matters more than absolute.
3Check the chart context — Has the stock been consolidating or drifting for weeks/months? A gap from a flat base is far stronger than a gap from an already-extended move.
4Check the spread — UK small caps can have wide bid-ask spreads. If the spread is > 3%, factor that into your position sizing and stop loss. Use limit orders, never market orders on AIM.
5Check director dealings — Have directors been buying recently? Insider buying on AIM is one of the strongest signals because these are often owner-operators who know the business intimately.
6Check the float — Many AIM stocks have tiny free floats. If directors and institutions hold 70%+ of shares, the remaining 30% can move violently on modest demand. This is a double-edged sword — great on the way up, dangerous on the way down.
7Check the fundamentals — Use your Ticker Lookup tab (add .L to the ticker). Is revenue growing? Are margins improving? A catalyst on a fundamentally improving business has much higher drift potential.
8Size appropriately — UK small caps are less liquid than US stocks. Keep individual positions smaller (1-3% of portfolio) and be prepared for wider stops. The lack of options means you can't hedge cheaply.