The float is half the puzzle.
Failure to account for the float will put you at a significant disadvantage when trading in the stock market.
I’ll give you the down and dirty version with no hype. Exactly what the float is, why it matters, and I’ll finish off with how I use it in my trading.
The float is the number of shares available to the public for trading. You can look up the float at a number of financial information websites.
When I build my watchlist this is one of only a few pieces of information I lookup for every stock that’s on my list.
Why It Matters
Markets move based on supply and demand.
When demand exceeds the supply it drives the price up.
The float is the supply. It’s impossible to know exactly what the demand is. The volume gives us a hint of the demand but it’s not a complete picture.
When the float is low, the supply is low. The lower the float the less demand it takes for the stock price to spike.
You can read as many analyst reports as you, watch indicators, and calculate the latest RSI. None of this really matters.
The only thing that can drive price change in the stock market is supply and demand.
I consider any amount under 20 million to be low. I’ll sometimes note the float is “lowish” that means it’s between 20 and 30 million.
I’m strictly a day trader so my take doesn’t apply to everyone. But here is one way I use the float to influence my trading.
I want to see minimum volume before I’m willing to take a trade. I’m willing to accept lower volume with a lower float.
My trading style is to trade the open only. I don’t sit in front of the screen all day. So as soon as a stock fails to maintain a minimum average volume it will be removed from my list.
Here’s the table I use:
Float Minimum 15-min/average
Under 20 million 100,000 shares
Between 20 & 30 million 200,000 shares
Above 30 million 250,000 shares