Top Low Float Stocks to Trade for Volatility

Low float stocks are an interesting part of the stock market, loved by traders who want to play high volatility. These stocks, a type of floating stock with a limited number of shares available for trading, can move fast and offer high risk and high reward.

What are Low Float Stocks?

Low float stocks are shares of companies with a small number of shares available to the public. A stock’s float is calculated by subtracting restricted shares – insider shares or institutional shares – from total outstanding shares, which can be found on the company’s balance sheet.

Why are Low Float Stocks Volatile?

Limited Supply: A smaller pool of shares available to the public means prices move more when demand increases. This limited supply can cause significant movements in the share price when demand increases.
News: Good or bad news can move the stock.
Speculation: Day traders and short sellers target low float stocks for quick trades and increase volatility.

Low Float Stock Metrics

Float Size: Float of less than 10 million is generally considered low.
Average Daily Volume: Higher volume vs float means more trading activity.
Market Cap: Smaller market caps usually mean low float, below $300 million.
Capital Stock: Capital stock refers to the total number of outstanding shares a company has, including both floating stock and restricted shares. It provides insight into a company’s available shares for trading and its implications for investors.

Low Float and Day Trading

Is Low Float Good for Day Trading?

Yes, low float stocks are popular among day traders because of intraday price swings. However, these stocks are often closely held by institutional investors, employees, and other major stakeholders, which limits the number of shares available for trading. But high volatility means higher risk.

What is a Good Low Float Number?

A good low float number is relative to your trading strategy. Generally:

1–5 million shares: High volatility, for experienced traders. Low float penny stocks, which have a float of 1-5 million shares, are highly volatile and suitable for experienced traders.
5–10 million shares: Moderate volatility, for less aggressive strategies.

Pros of Trading Low Float Stocks

High Volatility: Big short-term gains.
Short Squeeze: Low float stocks are prone to short squeezes and prices go even higher.
News Reaction: Market sentiment changes fast and creates trading opportunities.
Stock Buybacks: Stock buybacks reduce the number of shares available for trading, which can increase volatility and create trading opportunities.

Cons of Low Float Stocks

High Risk: Significant fluctuations in stock prices can lead to big losses.
Liquidity: Limited shares means it’s hard to get in or out of a position.
Market Manipulation: Prone to pump and dump schemes.

Low Float Stocks and the Market

Market Impact

Low float stocks can create localized volume spikes and impact the broader market activity in their sectors. The stock float, or the number of shares available for trading, can create localized volume spikes and impact broader market activity.

Low Float Sectors

Technology: Emerging tech companies.
Biotechnology: Companies developing breakthrough treatments.
Energy: Renewable energy startups with limited shares available.

How to Find Low Float Stocks

Stock Screeners: Scanz and Finviz are essential tools for trading stocks with low floats, allowing you to filter stocks by float and volume.
News Platforms: Follow stocks with recent news or earnings.
Trading Communities: Forums and social media will highlight low float stocks.

Low Float Stocks and Short Squeezes

Low float stocks are the perfect target for short squeezes, where a quick price move forces short sellers to buy shares and drive prices even higher. Understanding the float of a particular stock is crucial for identifying short squeeze potential.

How to Identify Short Squeeze Potential

High Short Interest: Means a big percentage of the shares are short.
Unusual Volume: Means demand for shares is increasing.

Special Considerations for Low Float Stocks

When trading low float stocks, there are several special considerations to keep in mind. One of the most important is the potential for market manipulation. Due to the limited supply of shares, low float stocks can be vulnerable to pump-and-dump schemes, where a group of traders artificially inflates the stock price and then quickly sells off their shares, causing the price to plummet. To avoid falling victim to these schemes, it’s essential to do your research and stay informed about the company’s financials and any potential news or events that could impact the stock price.

Another consideration is the bid-ask spread, which can be wider for low float stocks due to the associated risks. This means that the difference between the purchase and sale price offered by a brokerage can be significant, resulting in higher transaction costs for investors. To mitigate this risk, it’s crucial to work with a reputable brokerage firm that offers competitive pricing and tight bid-ask spreads.

Finally, it’s essential to be aware of the potential for rapid price movements in low float stocks. Due to the limited supply of shares, even small trades can cause significant price swings, making it challenging to predict price movements. To manage this risk, it’s crucial to set sensible stop-loss orders and maintain a diversified portfolio.

Tools and Resources for Trading Low-Float Stocks

There are several tools and resources available to help traders navigate the world of low float stocks. One of the most popular is the StocksToTrade platform, which offers a range of features and tools to help traders find and evaluate low float stocks. The platform includes built-in scans, great charts, and tons of indicators, making it an ideal resource for traders looking to capitalize on the volatility of low float stocks.

Another valuable resource is the Scanz Pro Scanner, which allows traders to search for low float stocks with ease. The platform features multiple filters to help traders narrow their search using the most critical metrics, making it an excellent tool for finding hidden gems in the stock market.

In addition to these platforms, traders can also utilize traditional stock screeners and financial news websites to stay informed about the latest developments in the stock market. By combining these resources with a solid understanding of the stock market and trading strategies, traders can increase their chances of success when trading low float stocks.

Low Float Stocks to Watch

While specific stock picks depend on market conditions, look for these characteristics in low float stocks:

Emerging Industries: AI, renewable energy, biotechnology.
Strong Fundamentals: Growth trajectory and minimal debt.
Recent News: Stocks reacting to big news or earnings.

How to Trade Low Float Stocks

1. Set Stop-Loss

Protect your capital by setting your exit points.

2. Don’t Overleverage

Leverage amplifies gains and losses; use with care.

3. Watch Market Sentiment

Follow news and volume to anticipate price moves. Changes in a stock’s price can impact liquidity and trading strategies, especially for low-float stocks, where rapid price movements are common due to high trading fluctuations.

Examples of Successful Low-Float Stock Trades

There are several examples of successful low float stock trades that demonstrate the potential for huge gains in these volatile stocks. One example is AMCON Distributing Company (DIT), which has a float of approximately 152,000 shares. This stock has been known to trade just a few thousand shares a day, making it prone to major intraday swings. By capitalizing on these swings, traders can potentially earn significant profits.

Another example is Biglari Holdings Inc. (BH), which has a float of 913,000 shares. This stock is a relatively steady low floater, but it’s capable of some big intraday swings. By identifying the right trading opportunities, traders can potentially earn huge gains in this stock.

Finally, Chicago Rivet & Machine Co. (CVR) is another example of a successful low float stock trade. This stock has a float of 786,000 shares and trades a couple of hundred shares on most days, making for an interesting-looking chart. By capitalizing on the volatility of this stock, traders can potentially earn significant profits.

These examples demonstrate the potential for huge gains in low float stocks, but they also highlight the importance of careful research, risk management, and trading strategies. By combining these elements, traders can increase their chances of success when trading low float stocks.

FAQs

What is a good low float number?

Less than 10 million shares is generally considered low but depends on your strategy.

Is low float good for short squeezes?

Yes, low float stocks are very prone to short squeezes due to limited shares available.

How to find low float stocks?

Use stock screeners, news platforms and trading communities.

Are low float stocks risky?

Yes, they are very volatile but can be very profitable for smart traders.

Bottom Line

Low float stocks are for traders who want high volatility. While the upside is big, the risk is too. Use good trading strategies and stay informed to trade low float stocks.

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