It’s a Small World – Volatility, Risk, Potential – The Float

The Entry Points

Float, like “breaking out” or “holding up well”, is a term just thrown around without any attention to detail. And like with everything in markets, nothing is alone or by itself. There’s context and continuity with all of this. Even tho our individual trades have a beginning and an end to them, the markets do not; there’s just continuity – a continuing process with all different time frames involved. The 1 minute is part of the 60, which are both part of the daily, etc. So our analysis needs to account for the ongoing process (continuity). Therefore analyzing and working on all of this needs to be in context. And to confuse it even more, all of this is dependent upon our own time-frame for each position we have. If we’re position trading, stuff that happens on a 1 minute chart, is likely noise. And when we are daytrading crap stocks, their “shelf life” is usually 1-3 days. In other words, in the big picture, these moves are nothing more than a bounce, but these “bounces” are huge uptrends on a 1 minute chart. And a stock’s “float” plays a potentially big role in turning these stocks into monsters on the upside.

Recently, I daytraded AEZS and TEAR – the two trading videos are here and here, also CAPR, TEUM, ANY – there are videos, discussions, confirms for those on our site. Part of the reason I was focused on the potential for these to run is because of their “low-float” situation. These situations have 2 great things going for them – volatility and potential (parameters). It’s mind boggling to me why so many people are oblivious to/or sneer at the small stocks. They are viewed as extremely risky, and they certainly are if the viewpoint is how almost everybody views markets. (Just one pet peeve, but there are many about the conventional view of risk.) Meaning most people view markets as investing or position trading, which is perfectly legitimate, with established stocks or markets. It’s correct that these are less “risky” in certain respects, but they don’t move nearly as well as the small stocks, and currently many established markets aren’t hardly moving anymore. So guess what? Everyone loads up on the leverage, and voila! Now they get movement in their accounts (both ways). But they’re not getting more movement in their stocks, only in their accounts. So how is that “less-risk”. You see they actually want the volatility, but don’t want the “risk”.

Yes I trade the established markets at times, like QLD or TQQQ or SQQQ, or miners – there are discussions of this stuff at the Winners List page. When trading these, I do use margin, so to speak. And these things are already leveraged to begin with, because people truly want the volatility. but they are no where near as volatile as small stocks (on a consistent basis). Most people are afraid of volatility, yet we need volatility for returns, but once it starts then people freak out. Why? Because they don’t sit and wait for the volatility to set up a high probability entry point. They only become confident during the low volatility price rallies. There is nothing which gets people confident like rising prices. I attempt to do the reverse. Why? Because the weak hands are always wrong at the bigger turning points – always. When I bought gold (and miners) at $1214 on July 7th into the – selling/freaking/”breaking supports”/”strengthening economy”/”rising interest rates” – the weak hands were doing what they always do – selling/shorting at the really good lows. So this week after the $60 rally, they’re buying again. Why? It’s just what they do.

And so back to using “float” – it’s not magical, it’s just another tool. Float is the # shares available for trading. It’s “figured” by finding the # of outstanding shares (OS), meaning all shares available to be owned. This includes restricted shares (RS), for directors and insiders, which are not available in the float. Then the float is found by subtracting the RS from the OS. If you’re daytrading, only the float matters. If investing, the OS and the float matter. Also important is what is the % of the OS which is traded, meaning the float – in other words, the float is what % of the total OS. The lower the #, the higher the probability of more volatility. Also a few considerations –  how many shares (trade size) would equal 1% of the float and how many shares need to be traded in one day to equal the float (turnover). Also, some people look at the float in relation to the short position of a stock – that one is a bit shaky to me.

So I used these tools as part of my reason for trading TEAR, with the video here. The float info from Yahoo is here. TEAR has a float of 5.1 million, which is small, but an OS # of 5.75 million. So the float is 89% of the OS, which is high. But the turnover on the rocket ship pump day was 4x the float. There’s your volatility, and that’s why it’s a small world after all: