How to Trade Low Float Penny Stocks

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. 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. Watch our video on how to trade low float penny stocks.

Free Trading Courses

How to Trade Low Float Penny Stocks

  • Here’s some simple steps on how to trade low float penny stocks:
  • Scan for gapping low float stocks under 20 million pre-market
  • Look for pre-market volume of at least 100,000 shares
  • Have a watch list of 3-5 stocks to watch at market open
  • Research if there is a news catalyst
  • Map out premarket support and resistance levels
  • At open, watch for volume spikes
  • Look for bull flag pull backs or ascending triangle formations
  • Take potential entries at support levels
  • Exit trades at resistance levels or when reversal patterns take place

low float penny stocks

A popular sector in trading are low float penny stocks. Here at the Bullish Bears we get a lot of new members who are coming in and drawn to the penny stock world in general. In fact, a lot of people, especially new traders, are intrigued by penny stocks.

Penny stocks are just that, stocks below 10 bucks, typically. Penny stocks are special. They have the ability to make money without a lot of capital investment. Watch our video on how to trade low float stocks.

Trading low float penny stocks are risky but 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 your newbieness. We’re here to help and keep you informed.

Trading Low Float Penny Stocks 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

low float penny stock

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. We scan for low float penny stocks with gap up patterns daily on our trade ideas scanner page.

Penny stocks are considered to be any stock $5 and under according to the NASDAQ. We look at them as stocks under 10 bucks usually. They don’t typically trade on the exchanges so they’re not as regulated.

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.

Read our post on day trading computer setup to make sure you have the best trading computer setup. Having poor technology for trading can hurt you.

Is a Low Float Stock Good?

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.

Be Aware of the Pump and Dump

Low float penny stocks are subject to pumpers and manipulation. In fact, it’s a large part of trading penny stocks. 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 (try our stock picks service free).

Charts of Low Float Penny Stocks

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? My personal favorite patterns are bull flags, bull pennants, ascending triangles, and rising wedges. 

Head and shoulders patterns are also a popular one, and not just for penny stocks. Along with descending triangle patterns, double top patterns and shooting star patterns.

Knowing candlesticks and patterns will save you a world of hurt in the penny stock sector. We have an entire candlestick course that will help you learn the ins and outs.

You’ll know if it’s a good or bad trade to make. You don’t have to take someone at their word. You can find out for yourself.

What Is the Threshold for a Stock to Be Considered Low Float?

  • The threshold for a stock to be considered low float is less than 20 million shares
  • Super low float less than 10 million shares
  • 50-100 million shares medium float
  • Over 100 million shares would be considered high float

Low Float Penny Stocks & Risk Management

You don’t need to be afraid of or stay away from low float penny stocks. In fact, all you need is good risk management. As a result, 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 kill your account. If you’re up take your profits. You can always get reentry. That’s so much better than watching that profit go down the toilet. Come in and learn with us before you start trading low float penny stocks. We offer a free trial to our trade room and we don’t charge much for access. You’ll get live streaming, stock alerts, and so much more.

Free Trading Courses