By L.A. Little of tatoday.com, author of Trade Like the Little Guy.

"We have nothing to fear but fear itself," Franklin Delano Roosevelt would say, and this is true of small-cap stocks as well. Small- and micro-cap stocks can provide enormous gains. But they do carry greater risk.

The key to success in this arena is to ferret out those that have the greatest potential, to use wise money management and stops, and to keep looking for others that are performing well. Over the past couple of weeks, I've looked at a number of these smaller stocks and I'll end the year looking at one more -- KVH Industries ( KVHI), which develops, manufactures, and markets mobile communications products.

KVHI has both domestic and international customers as well as the big-spending U.S. government. The company's chart shows a pattern of bullish moves. Long term, it is on the verge of breaking higher in a larger way.

The long-term view is what draws me to this name.

I'd like to see share prices close higher than $14.48, but KVHI is already suggesting that it intends to break higher, if not now, then soon.

I say this because even if we fail to close over the previous monthly swing point from 2006, we are attacking it with volume and will most likely be right back up here if we do pull back.

Here's the intermediate-term time frame.

Here, the most notable thing is the trend line, which tells us things are still working here.

Last week's spike on volume was notable, though, and is visible on this daily chart.

Prices pulled back Wednesday on larger volume. But look how the volume remained subdued when compared to the swing point area it was testing. At that price point, more than 300,000 shares traded for two consecutive days as prices rose about 15%. Wednesday appeared to be the weaker hands getting cleared out of their shares.

Having sold off some of the shares on that spike higher, I was buying into the weakness and increasing share size at improved prices. One idea I talk about in my book, "Trade Like the Little Guy," is that you sell off some shares when prices either rise too fast, come into key resistance points, or show a failure on the daily chart after a large fast price move.

The reason you do this is so you can subsequently buy the sold shares back at a cheaper price if the stock continues to trade well. Doing this creates a win-win situation for you as a trader and is a key item in how you can consistently make money over time.

This spike higher and then failure two days ago signaled that opportunity. Wednesday provided the ability to scale back in and create the win-win.

Have a happy and safe New Year's Eve night, and as always, keep trading the charts!

Please note that due to factors including low market capitalization and/or insufficient public float, we consider KVHI to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Little was long KVHI, though positions can change at any time.

L.A. Little, author, professional trader and money manager, writes daily on www.tatoday.com, a free educational site for traders and investors. He has been featured in numerous publications and is the author of Trade Like The Little Guy.

His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.

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