I recently came across Float Analysis as an indicator. I am very intrigued by it. However, Call me skeptical ... I just don't know about its merit as a stand alone indicator. I have been doing some of my own testing of it. To me it looks promising when used in combination with other indicators. Have you heard of it? Do you use it? How do you use it? Do you like it? What do you dislike about it? Maybe we can compare strategy and charts. I am very curious what others have to say.
If you are a Tradestation user then you should check out Mark Conway's book. He has a system based on float analysis. He combines float turn over with channel break outs, if I recall correctly. Take a look.
A guy by the name of Steve Woods has a website called http://www.Floatanalysis.com where he uses floatanalysis to look at stocks. I occasionally listen to Steve on Tom O'Brien's shows on TFNN over the internet between 9-10 am CT and 3-5 pm CT. I'm not convinced of the worth of this analysis tool but I will listen to Steve with an open mind. He has come up with some interesting analysis on occasion.
From what I understand (that's the caveat) about float analysis, it's the turnover of the amount of shares somewhere numbering the quantity of the float. The presumption is that once the new buyers are are all on board, they become the sellers and in turn sell to the newer buyers until the float has turned over again, and so forth and so on. And so, that by so noting the turnover, one can more accurately ascertain when tops and bottoms are near. Which sounds great until one considers that not every buyer will sell within the next turnover, nor will those that do sell then sell every share they bought, that some will buy while others short (borrowing the stock) which skews the number, that some will both buy and sell within the turnover itself, that some will die while holding the stock and it won't be released from probate for sale until probate is finalized which could be after the turnover, that demand and supply for the stock will wax and wane, that some neglect to sell when they wanted to sell and others will hold off selling not wanting to either realize their loss or cash in their gain yet, that mrmarket will hold his position until he hits 15% or dies or there is a FA change warranting an exit, and conversely that a bunch of traders will be out this afternoon and back in tomorrow and in and out a few times today, tomorrow, next week and next month. Now keep track of the float analysis for determining tops and bottoms.
The points you make in your post pretty much cover why I am skeptical about this analysis technique (although I must confess, I never gave much thought to shares tied up in probate ).
All of the negatives are mentioned here are valid, but if you look at numerous charts with the float indicator, you'll see almost always that the major bottoms and major tops (like on a weekly chart) fall very close to a 100% float turnover point. I am not trading stocks at the moment, but intend to study this concept carefully when I want to store my equity in a longer term vehicle than I currently use. btw- If you use eSignal, Chris K. has a very inexpensive float indicator EFS
If you plan to use this you really should read the book. You will never make it as a trader if you are always looking for a short cut or an easy or cheap way to do things. If you are new to trading or if you have not given much thought to where the people who own the stock are in the profit cycle, this indicator may help. Float Turnover can fit very well into some plans. Other trading plans it will not. It is not a magic bullet, there is none. However, if you note on the Float Turnover that during this period most of the people are underwater on this stock and your other indicators say sell, it may be a good Short. Or on a pull back and most of the people are in the money and your other indicators say buy, it may be a good Long. Like any other indicator it should not be used by itself. It sould be used as conformation for your current trading plan.
there are multiple other threads on this topic http://www.elitetrader.com/vb/showthread.php?s=&threadid=16242 http://www.elitetrader.com/vb/showthread.php?s=&threadid=14340 http://www.elitetrader.com/vb/showthread.php?s=&threadid=1871 http://www.elitetrader.com/vb/showthread.php?s=&threadid=1359 http://www.elitetrader.com/vb/showthread.php?s=&threadid=2239