hey I am still learning here, and have read rather often about this one particular stock, that one good thing about it is it's low float, 1 million actually, I am struggling to see why the size of the float can give them such positive thoughts towards the stock?? Can anyone please tell me if the size of the float has any affects on a price, and what the possible effects are , whether negative or positive?? Your help would me greatly appreciated. Thankyou
A stock with a low float can move much more quickly and powerfully due to the basic laws of supply and demand. If there is a low float, that means there is a low supply of stock to be traded in the market. Therefore, when there is alot of buying interest, but relatively little stock to go around, what happens to the price? Yup, it shoots up. Likewise, if there is a decent number of short positions on a low float stock, a move up in the price will cause shorts to scramble to cover, and with relatively little stock out there to buy, it causes even more upside price action. The flipside is that a stock with a low float can also move down quickly, since again there is a small number of shares available to trade, thereby making it easier to move the stock's price with less volume. By contrast, take a look at stocks like CSCO and DELL, which have split and increased their float so many times that it is rare for them to trade in large point swings anymore, since it would take a tremendous amount of volume to move them more than a point or two. This is because their floats are so huge.
The float is not as important as how much volume there is at any given time. Try to load e.g. ALTR and INTC in two Level II boxes and have a look at the liquidity at the different levels. If you're an experienced trader you can exploit the "air pockets" that often occur in lighter issues like ALTR; if you're less experienced you will find it difficult (=expensive) to correct even small mistakes.
Vikana Would you mind elaborating your point. I must admit i don't understand what your getting at RE: "exploit the "air pockets" that often occur in lighter issues" TIA regards/greg
gh1, I could have explained that more clearly Let's say you're long XXXX and that you are currently looking to sell. The current market is 29.9 by 30. If you look at Level II you may notice that there are only 200 shares at 30, 200 at 30.1 while there are 500-1000 at the best bid. In that case you could post a sell on ISLD for 30.2 and it's likely you would get filled. The reason is that there are several people all trying to get fills at 30 and some of them will try e.g. ISLD with a higher limit, just to get a fill. By "air pocket" I meant that the stock would "jump" through 30, 30.1 and you'd get filled outside the bid/ask. This obviously works against you were trying to sell a stock that was going down and the bid's were sparse. In that case you might have to accept a sell price under best bid, just to make sure you got out. Maybe "air pocket" matches this scenario better. If you trade thin issues you may end up giving up quaters much more than you would suspect; hence my recommendation to watch Level II volume, before getting into a security.
There is a float analysis indicator available from http://www.floatanalysis.com and http://www.janarps.com. The idea behind float analysis is to measure the ongoing turnover in daily volume from a point in the past to the present. In theory complete turn over marks new hands in the security. While there will always be long term holders float analysis as an interesting indicator. I have found this concept to work especially well when combined with break out patterns nearing the float turn over. TASC, reviewed this technique a couple of years ago. -Hoyler
Thanks guys, one more thing about the low float i am not sure of, this company had several days of about 200,000 volume, then it completely dropped and was between 30-50 thousand volume. but with the small volume was creeping up. Does this have any common reason when the volume suddenly drops so low? is it usually a good or bad sign? Thankyou, you guys are awesome help.
Usually a drop in volume means that a stock is consolidating or making weak moves. Price movements on lower than average volume usually don't hold up, so if for instance a stock breaks through a resistance level on low volume, chance are high that it is a false breakout and will fall back through. Conversely, a break of resistance on a strong volume day give a high probability of that breach holding. I don't know the stock in particular you're referring to, but check what its average daily volume is, over say the past month or 2. A lot of small illiquid stocks will get a few days of larger than normal volume on some news or other event, and then fall back to its average volume.
High volume and the direction should not usually be ignored. If the stock reverses direction but the volume is super low, it is probably some profit taking, and a few short term shorters (like me) stepping in. After a few days in the trend if for real the stock should pick up volume and continue it's move. Watch out for climax runs though. They are on increased volume and parabolic moves. It's best to sell into something climatic. rtharp