Low float stocks (the number of shares available for trading for a particular stocks) are of exceptional importance for me during a session. Why is that? Especially due to remarkable changes of their price. Why do I focus especially on the „float” coefficient while checking statistics of companies? I am going to tell you more about that in this article. I hope that you will find it interesting and that the publication will broaden your horizons with regard to quick day trading-related actions.
Why am I interested in low float stocks?
Mainly due to the possibility of boosting the value of the company, which then translates in the possibility of joining the trade or opening a short position in the case of a trend reversal.
In the majority of cases, the increase is rapid and dynamic. However, the drop of the value is sudden as well. Therefore, there are two possible actions that can be performed. I cannot stress enough that both of them are connected with a significant risk. Remember, those are not companies worth investing in. You make a quick move and then do not go back to the company for the consecutive weeks, months, or years. It will be worth checking again if its position gets boosted.
NOTE! Do resist the temptation to be engaged in strong movements. In numerous cases, the movement is not connected with any news nor with any piece of information truly affecting the value of the company. While trading such stocks, you should cut the losses and do not think that if there has been an increase from 50 cents to 3 dollars, the stock value will eventually reach 10 dollars. Such a scenario may happen, but the stocks may quickly return to the value of 1 dollar. That is why I am talking more about trading than about investing.
What company statistics to look for?
For me, a low float stocks is when there is less than 5 million authorized shares available. I would like to discuss the VII company as an example from 18th July. There were no news about the company and the value was just artificially boosted. Its float was equal to 6.38 million available shares.
The share value started from 0.85$ during the pre-market session to reach 1.50$ during the session proper. As you can see, it was 100 % increase while juxtaposed with the value from Friday. It was a lot, was it not? What is more, the change happened without any news. Afterwards, there was a drop. It might have been slower, but it was stable. It was connected with those believing that with the price 1.40-50$, the value of the shares would go higher losing interest in the company.
After a few minutes of value increased, next 1.5 hours was a stable drop. How the volume looked like? Within the first 2 hours, over 6 million shares were traded – almost the amount of all the available shares. It is safe to assume that almost every share changed its owner. It might have not been like that, but it shows how little is needed to generate a 100 % changing of stock’ price.
Example of low float stocks:
I was especially interested in price action during the increase. Longs starting at 1.15$ were realized between 1.40 and 1.45$. Why? Because numerous offers started appearing, which meant that the satisfying trend was over. Afterwards, I opened shorts at 1.28-32 and closed them at 1.22-24$. I also made several moves where the threshold of 1.20$ was passed. The said actions were realized at approximately 1.10$, at which level the value stopped for some time.
How did the VII ended the session? As it can be seen, the value felt to 1$ only to increase a bit at the end of the session. Let summarize the changes – increase of the value from 87 cents to almost 1.5$, proceeded by the decrease to the value of 1$. Some may say that it was possible to earn 100 % of the initial capital, but I would say that one could also have lost 50 %. Remember, if you are interested in such actions, you have to master ins and outs. Do not invest in them by any means 🙂
Two methods of trend reversal pattern identification
There are two methods of performing short actions in the case of such incremental trends:
Frontside, which I cannot recommend as you may lose too much (especially if you cannot quit and you tend to believe that the value will not be higher than the current price).
Backside, which is a more reasonable playing method.
Let me tell you how they are different from one another…
Frontside – it is an option for true champions 😉 it is based on looking for an unexpected increase and predicting that the value will not go any higher than it is at the moment. However, the value may increase 🙂 If you happen to perform a good action, you may get a short from an incremental trend which is something to be proud if. You must ask yourself, however, how many times you will fail and how much money you will lose in the process.
Frontside examples are presented in red. You may notice that there are four of them. At all times, a local high point was achieved. Sometimes there had been a correction, after which there was a further increase. If you had started your first short at 1.07$, you would have had probably closed it at 1.20$. For 1.20-30$, you would have had finished your short at 1.35-40$. You would have had succeeded after your fourth attempt.
You may think that I am exaggerating as no one acts in such a mindless manner. I would not say so. Such actions are performed by people who are not aware that a company may be notably boosted – there had been no news, no gains, and the company had not had its established headquarters.
Backside – it is based on acting when there have been a correction and a particular pattern has started emerging.
I have added backside ins to the previous chart. What is different in this case? With backsides, I do not look for increases but rather for particular patterns. It has to be a reoccurring one that may be utilized quite frequently.
Let us skip the increase from 87 to 1.50$. The said changes not of interest for us. We are interested in what happened after the first drop. The value fell to the level of 1.25$, after reaching which there was an increase to 1.30$. It was followed by a drop to 1.20$ and increase to 1.30$. There was yet another 1.20$ -> 1.30$ pattern with a bit of incremental trend…and a drop. Can you notice the pattern? It is simple. The 1.30$ value is the threshold after reaching which you can perform a short action. Afterwards, there was a breakdown to 1.20$ and later on – to 1.10$.
It may be said that such a move is not only profitable, but also safer.
Example of low float stocks
Let me show you yet another example from yesterday. Conversely to VII (in the case of which I played both longs and shorts), for the XNY company, I played shorts only. I am going to indicate the backside immediately. I assume that you can calculate the frontside by yourself and check the number of entries where there was the assumption that the value would not go higher. It was yet another company the value of which changed from 1$ to 3.60$ within only an hour.
XNY – float was equal to 2.91 million shares. Yesterday….12 million shares of the company was traded. It means that all the shares could have changed their owners almost 4 times. Could you imagine such a situation for a company like the Bank of America? I find it exceptionally hard to do 🙂
How to look for low float stocks?
If you are a day trader, you should take advantage of share screeners. It is the only option for you not to be 15 minutes late (as it is while using free websites with quotations).
I personally mainly use Trade Ideas, which I have written about on numerous occasions. Now, I would like to share with you some information on the filter I use to look for “Low float”, where the possibility of a change is higher. Thanks to the said filter, I have been finding them quite frequently.
Below, you can find a link to the Cloud . By clicking it, you can download the aforementioned filter: http://www.trade-ideas.com/Cloud.html?code=76e9cc080fff61aa47c17afd52d20cae
How to add the filter? At first, you have to purchase Trade Ideas (use the 15BEDAYTRADERPL promo code to get it 15 % cheaper).
Then, follow the instructions presented on the images below:
If you are still learning, you may utilize the Free Stock Screeners that I recommend. Thanks to them, you can find companies the value of which has changed considerably with 15-minute delay. But for sure you will find there low float stocks.
Where you can find float of stocks?
Just visit Finance Yahoo and check symbol of stock that you are interested in and click “Statistics”.
Do you trade low float stocks? Do you have your own examples or points of view? If so, share them with us in the comment section below.