Trading Low Float Stocks - YouTube

- What's up?

Tim Sykes, Millionaire Mentor, here

with my Tim-in-arms, Tim Bohen,

Lead Trainer of StockstoTrade.

How's it going?

- Great.

What are we gonna talk about today?

- A lot of people don't understand

the risks and the potential rewards for low float stocks.

So let's just educate the audience.

- Sure, so I'll start out with kind of a definition

of a low float stock.

First of all, the float is the freely tradable shares.

A lot of stocks have institutional investors,

have insiders that have shares,

maybe employee compensation plans, et cetera.

The float is the freely-tradable shares

that you or I or Tim can trade on the open market.

The lower the float, the better because remember,

in the end, the market is supply and demand.

It's a market.

There's buyers, there's sellers,

and just like you learned in high school economics,

the lower the supply, and the more the demand,

typically, the price goes higher.

So the float is the freely-tradable inventory,

for lack of a better term.

Low float, when we talk about low float in our world,

it's usually less than 10 million freely-tradable shares,

so look for that number, is what you're looking for.

- Let me add to that.

So you have three things:

shares outstanding, float,

and restricted shares - Yep.

- So you began to explain about restricted stock.

This is like what institutional investors have,

insiders have. - Employees.

- But because he doesn't eat his greens,

he doesn't make, you know, well-formulated thoughts.

So those are restricted shares.

Unrestricted is the float.

This is freely-tradable shares with average people.

When we say low float,

okay, 10 million, 7 million, 5 million.

It is also matters what the stock is trading.

A stock might trade a million shares

and the float is 20 million shares, that's not much.

That's only 5% of the float.

What I like about low float stocks

is they can move very fast.

It's a double-edged sword because if a stock is spiking,

let's say there's a million shares of people

who wanna but the stock, and the float is only two million.

Instead of it being 5% of the float,

that's 50% of the float.

And what happens if another million shares wanna buy,

and another million?

What if there's ten million shares that wanna buy,

and there's only a two million float,

so now five times the amount of people

want to buy the stock that exists.

- And think about that back to that supply and demand idea.

- The demand is so great. - Yes.

- Then the stock price has to go up

in order to kind of inspire people to want to sell.

- Or to scare some of the buyers away.

- Yeah.

- Except if that price goes high enough,

then the demand is going to drop.

I mean, it's just basic supply and demand, yeah.

- It goes up and down.

It's like the Laffer Curve.

Study economics, it's good for you,

and it puts you to sleep. (Tim Bohen laughs)

I do worry about people trading low float stocks because,

because they can spike so fast and drop so quick,

you have to be, like, triple on-guard.

Obviously, I always say,

"Cut losses quickly," rule number one.

But low float stocks can move like freaking ping pong balls.

A low float stock, some of these stocks,

have low floats of, like, 300,000 shares.

- And they might trade 30 million on the day.

- So that's called float rotation.

So it might rotate the float two, three, five, ten,

twenty times, and the stock might go

from one to ten, back down to one, all in one day,

and you have to be aware of that.

Low float stocks move the quickest,

so it's good if you're riding it up.

Or if it's up, like, from one to ten on the day

and you find shares to short

and it comes back down to, like, one on the day,

just beware that this is so, so, so dangerous.

In such a quick market,

you have to really be prepared ahead of time.

- See, I think when you see a stock

that went from one to ten dollars in one day,

or even one to five, I mean, these crazy moves.

We've seen thousand percent runners before.

- In one day. - In one day.

We routinely see hundred, two hundred percent runners,

so a lot of new traders get very enamored with that idea,

and then sometimes they overstay.

One point I wanna make before we wrap up this video is,

I say this all the time in StockstoTradePro.

You can never be out of a low floater too quickly.

We always talk about standard market nomenclature is

cut your losses early, and let your winners run.

I agree with that, except in low float land.

You cannot let your winners run in low float land.

If you get that big green move,

you take that profit, and you run away as fast as you can.

Don't overstay.

- And even if you are in a low float stock

that's moving fast and the profit seems amazing,

I would encourage people to trade smaller

than they think. - Yes, yep.

- Like if you think, "Oh, I wanna buy 5,000 shares,"

remember this video and maybe buy 1,000 shares

instead of 5,000.

Go smaller because the moves are so quick,

you really cannot control the risk on big size positions.

I mean, I've seen some traders where the float is 300,000

and they're taking a 30,000 share position.

You're 10% of the company.

Way too much, okay? - Right.

- I don't care if it's trading millions in the day,

low float stocks can also get halted.

- And the volume can dry up very quickly

and then you can't unwind your position.

- And then you have a nasty spread, too.

Sometimes the stock is still up, but the bid is like $5.20,

and the ask is $5.70, so the spread is 50 cents a share.

Such big risks with low float.

Big risk, big reward,

but you have to be mentally prepared.

Leave a comment below, if you understand

that it's all about safety.

Remember, 90% of traders lose.

A lot of it is due to lack of preparation.

We don't want you to make that mistake.

Leave a comment below.

Let us know what you think.

Also suggest some new topics for us.

We're running out of topics.

We need more.

Ask us anything, you know, except about Tim's hair

because he's very, uh, you know, shy about that.

- Two big points.

Remember, smaller size.

Take quick gains in low float land.

That's the two big take-aways.

- Leave a comment, too.

Cheers.

Hey, Tim Sykes, Millionaire Mentor and Trader.

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