Low Float Penny Stocks

Low Float Penny Stocks Explained

Low-float penny stocks are the most popular to trade. The size of a stock’s float typically determines its overall volatility due to supply and demand. The lower the float, the higher the volatility swings. Penny stocks are typically stocks below $10.

Low float stocks are typically stocks under 20 million float. They are especially high under 10 million. High reward yet also higher risk. These stocks can rip your head off if you’re not careful, so it’s important to have proper risk management parameters before trading them.  

Trading low-float penny stocks is risky but can be profitable. All trading has some risk, but penny stocks are a risk sector all on their own. Risk management is key to being a successful trader in this sector.

There are some other areas you need to be aware of as well. Because the penny stock sector is so attractive to new traders, somsome people try to exploit this.

Trading Safely

Learn how to spot a pump and dump and trade it safely. Traders who trade in this sector need good penny stock trading strategies. The better the strategy and risk management, the better your chance of success.

As we learn about low-float penny stocks, the first thing to define is what a stock “float” is. A float is the number of shares available for trading between traders.

Per Investopedia, the float is calculated by subtracting the number of closely held shares and restricted stock from the firms total outstanding shares. Closely held shares are shares held by employees, shareholders, and insiders.

Traders and investors like to investigate who’s buying and selling shares regarding “insiders.” Especially CEOs or people in management. Suppose insiders are buying and holding it; it is seen as bullish.

If insiders are selling shares month after month, it’s perceived as bearish. Sometimes, a stock will drop fast because an insider report shows it sold. The same is true if the insider bought more shares; the stock may rocket!

Restricted Low Float Penny Stocks

A restricted stock is the insider shares that can’t be traded. There is a restriction after the opening of the public offering. In other words, the lower the float, the more volatile the stock. 

According to the NASDAQ, Penny stocks are considered to be any stock $5 or under. We usually look at them as stocks under $10. They tend to be companies that are new or filing for bankruptcy, so be careful and be aware. These aren’t your typical blue-chip companies listed on the SP500.

In essence, low-float penny stocks are cheap and highly volatile stocks. Volatility is great for day trading. You’re getting in and out within seconds or minutes.

High float stocks are typically less volatile because of a HUGE supply of them. They might have 100 million shares outstanding, and they trade sideways and in a narrow ATR (average true range).

If you’re trading volatile stocks such as penny stocks, ensure a good setup. You need to get in and out quickly and avoid lag. That can be the difference between a profit and a loss.

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Be Aware of the Pump and Dump

Low float penny stocks are subject to pumpers and manipulation. That’s not to say you can’t profit from it, though, if you do your homework first and practice. Experience is key! 

Low floats are volatile, which is good if you don’t get stuck bag-holding. That is if you know what you’re doing and can get in and out quickly.

Pumpers buy a large amount of cheap stock, increasing the price. They then talk about how it’s going to the moon. You’re getting in on the ground floor of something revolutionary. You’ll buy it at least $0.005, and it’s going up to $20. You’ll be rich.

This sounds awesome if you’re learning to invest in the stock market with little money. You can get a lot of money without having a lot. So you get in. This pumps up the price more, the pumper sells their shares, and the price falls. All of a sudden, you’re left taking a loss.

If something sounds too good to be true, it probably is. Do your research before buying into a company based on someone’s recommendation. Know what you are getting into before jumping into a trade.


One thing you’ll notice of a pumper is that the charts don’t matter to them. They can be awful candlestick patterns and messy charts, but that’s fine with them.

It’s the future, so the charts don’t matter. Never listen to that nonsense. If the stock is in a terrible downtrend, guess what? That trend is likely to continue.

Is the company posting terrible earnings being managed awfully? Does the company have anything good to look forward to? Are they going to go bankrupt?

These are things you should know if you’re trading or investing them. The bottom line is that you can day trade anything, but you need to know the difference between buying and holding low-float penny stocks and day trading them. 

Charts don’t lie. The patterns are there for a reason. They tell you everything you need to know. What kind of patterns do you see on low float penny stocks? Our favorite patterns are bull flags, bull pennants, ascending triangles, and wedges. 

Final Thoughts: Low Float Penny Stocks

You don’t need to be afraid of or avoid low float penny stocks if you use good risk management. Have a profit target and set a tight stop loss, whether in the trade or mental. Stick with it, and don’t deviate.

Letting greed take control will hurt your account. If you’re up, take your profits. You can always get re-entry. That’s so much better than watching profits drain from your account.

If you need more help, take our day trading course.

Frequently Asked Questions

A low float stock is good if you are a trader that likes highly volatile small cap penny stocks to trade. Low float stocks are very popular to day trade and are highly profitable if you have the risk tolerance to get in and out of trades in less than a minute. Hot keys make trading low floaters quicker to trade.

  • The threshold for a stock to be considered low float is less than 20 million shares
  • Extremely low float: less than 10 million shares
  • Medium float: 50-100 million shares
  • High float: over 100 million shares

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