Low Float Penny Stocks

6 min read

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

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 and that’s why it’s important to have proper risk management parameters set in place 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 in their own. Risk management is key to be 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, there are people that take try to advantage of this.

Trading Safely

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

As we learn more about low float penny stocks, the first thing to define is what is a stocks “float”? 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 when it comes to “insiders”. Especially CEO’s or people in management of a company. If insiders are buying and holding its seen as bullish.

If insiders are selling shares month after month, its perceived as bearish. Sometimes a stock will drop fast just because a insider report comes out that they sold. The same is true if the insider bought more shares, they stock may rocket!

Restricted Stocks

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

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

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

High float stocks are typically less volatile, because there is 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, make sure you have a good trading set up. You need to get in and out quickly and don’t want any lag. That can be the difference between a profit and loss.

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 in the event that 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 big amount of a cheap stock, which in fact, pumps up 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 at $0.005 and it’s going up to $20 at least. You’ll be rich.

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

If something sounds to good to be true, it probably is. Do your own research before buying into a company based of 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 ever listen to that nonsense. If the stock is in a terrible down trend, 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, 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 personal favorite patterns are bull flags, bull pennants, ascending triangles, and wedges. 

Risk Management

You don’t need to be afraid of or stay away from 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 a mental one. 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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