If you are an active day trader or investor, I'm sure you've heard the word “float” getting used a lot. So, what exactly is it?
The term ‘Float’ references the amount of non-restricted shares available for the general public to actively participate in and trade. This value can be found on various financial sights such as Yahoo Finance and Finviz and is calculated by taking the total outstanding shares and subtracting the number of restricted shares (insider held).
As day traders we thrive off volatility, and the float of a stock plays an important role into that as it indicates to us traders the supply available to openly trade. Price action is a function of supply and demand. If we know a stock has a smaller float, we know that this implies more volatility simply because the supply is low.
Why should we care about a stocks float?
Opposite to this would be finding a stock that has a high float. We could infer that this will not have nearly as much volatility because the supply is so high. Hence why we see these small cap company stocks make 100%+ moves intra-day, and why blue-chip stocks like Apple (AAPL) and Microsoft (MSFT) usually only move a few percentage points on an average trading day.
Take note that many low float stocks (typically a stock under 10 Million in float is considered “low”) are strong candidates for big intra-day moves. This can be great if you learn to trade them with a proper risk management and trading system. At Livestream trading, we thrive on the most “in-play” stocks of the day and show first-hand how to effectively trade these types of volatile stocks for predictable moves both long and short.
Float is the shares available for the public to trade after subtracting the restricted shares from the total outstanding shares. It is imperative to active traders to understand float as it displays to us opportunity for volatility and drastic changes in price action. A little tip that might help you in your trading is to track the float of the stocks you trade, as well as the setup. Try to find correlations between the float, volume traded and the setups. Hopefully you will be able to use this to spot trends in your data to improve your win rate and profitability. Till next time traders, trade safe!
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