Low Float Stocks. How do They Work?
Recently we’ve seen an increase in the activity of a lot of “low float stocks.” Many traders who approach this type of momentum equity are confused by the way it moves and the volatility behind the stock. In order to fully understand the price movement and what determines how far this can go, we have to understand the fundamentals of a “ low float stock.”
Every company in the stock market has a certain amount of shares that has been issued. This is known as “shares outstanding.” However, only a portion of this amount is actually being traded during market hours. This is known as the “share float.” Generally, we want to look at share float as the amount of shares that is traded intraday and LIQUID.
So what allows me to determine how far a low float stock can go?
The amount of volume at open. And whether or not that volume is sustaining. I am typically always measuring the amount of volume relative to a stock’s float at open or during the premarket.
Let’s use an example:
ESEA on 12/15/2016.
A stock that recently went supernova when the Baltic Dry Index went on an exponential run 2 weeks back - started running up AGAIN along with all the other stocks in it’s industry. With this piece of information in mind, we want to examine other factors that could contribute to the audience behind these low floats (other populated chat rooms, stock twits, industry trends, scanners)
With a float of only ~3 million, I took my position after I saw a 4x increase in volume @ 10:02AM spiking price up $0.10 - $0.20 cents, I was sure that this stock had little resistance and had been trading very thin moving from $1.45 to $1.7 on very little volume. After confirming the shipping industry hype through my observation of my trading environment, I decided to buy in at $1.90 due to my certainty this would gain more attention and thus more buyers. With each dip, more buyers came in to support the run and that is how a stock continues.
When trading a low float stock, we have to throw our mentality of “this stock is up 50%, there’s no way it can go even further.” out the window and take a look at what’s important, and that’s whether or not the shares have exchanged hands from bears to bulls. Do bears possess any shares left that could potentially move price down? If not, then the price will go up!
Where can I search for a company's float?
What factors can decrease a stock's float?
% of share float short.