In this article, I’m going to explain what low float stocks are, why day traders love them, and how to find low float stocks with the Trade Ideas stock scanner.
You will also see 2 real-world examples of how I generated a 41% and 36% profit in just over an hour!
What is Float in Stocks?
A stock’s float is simply the number of shares issued by a company that are available for trading. This is different to the total number of outstanding shares, which includes tightly held shares by company insiders, major shareholders, and employees.
Because insiders rarely sell their shares, it means they aren’t available for ordinary investors to trade on a day-to-day basis.
Therefore, investors tend to exclude these when calculating float to give them a better idea of the number of shares that regularly trade on the open market.
In doing so, it helps them better assess a stock’s true liquidity.
Float = Shares Outstanding – Closely Held Shares
What is a Low Float Stock?
Generally, any stock with a float below 20 million shares is considered a low float stock.
Another way to see if a stock is a low float stock is to look at its “float percentage”. Float percentage measures the proportion of shares that are available for trading relative to outstanding shares.
For example, if a company has 1 billion shares outstanding, and 800 million are held by company owners, employees, and major shareholders, this leaves only 200 million shares available for ordinary investors (float). Therefore, this company has a 20% float percentage.
Most large cap stocks have a float percentage around 80-90%, so 20% would be considered low.
Why Do Day Traders Like Low Float Stocks?
At the end of the day, stock prices are driven by supply and demand.
And, because low float stocks have a limited supply of shares available for trading, it means that any sudden changes in demand can have a significant impact on the share price. This is why they tend to make great short squeeze stocks.
Low Float Stocks Are Volatile
It also means that low float stocks are volatile.
Day traders love volatile stocks, because it presents them with trading opportunities.
However, there are a couple of downsides to low float stocks.
Firstly, their higher volatility means they have wider bid/ask spreads – an implicit cost for traders.
Also, if you’re a large investor, you may not be able to buy low float stocks without moving the share price against you.
How to Find Low Float Stocks
In this section, I’m going to show you how to find low float stocks.
Your broker should provide you with a stock’s float, however you can also obtain it from free services such as Yahoo Finance.
While this is all well and good, flicking through individual companies to find low float stocks requires a lot of manual labour.
What we really want is an automated process for this.
This is where a stock screener, or stock scanner, comes in handy. Essentially, a stock screener lets us impose criteria on stocks – filtering out the ones that don’t meet them.
In the context of finding low float stocks, all we need to do is set a maximum number of shares for its float. Or, alternatively, a maximum float percentage.
For example, if we set the maximum float at 30 million shares, the screener would only show us stocks with a float below 30 million shares.
How to Scan for Low Float Stocks With Trade Ideas
Trade Ideas is the best premarket stock scanner on the market. With over 500 alerts and filters available, you can create endless customized scans to find your ideal stocks.
Of course, one of these filters is “float” (either number of shares or percentage).
As mentioned earlier, low float stocks tend to be those with a float below 20 million shares. However, you can obviously set this lower if you want, say, to 10 million if you’re feeling brave.
Personally, I like setting the maximum threshold at 50 million shares, which is in the low-to-medium float range.
This is just a personal preference, as I like having a broader range of stocks to analyse. Also, I’ve found that stocks with a medium float can move just as much a low float stocks.
These are my criteria for a low float stock scan:
- Float < 50 million shares
- Gap From Yesterday’s Close > 2% (I like to see some momentum)
The image below shows the results from that particular scan on September 7th 2022.
As you can see, all stocks have a float below 50 million, and a gap of at least 2%.
IMARA (IMRA)
IMRA gapped up ~37% on 7th September, and then rallied another 35% intraday to close at $2. In total, it rallied 200% in just over a month.
The great thing about Trade Ideas is that it has around 48 pre-configured screen setups called “Channels”. Each channel represents a theme or trading strategy that’s popular with day traders.
For example, in the “MOMO-Mentum” channel, there is a pre-configured scan called “Low Float Winners”, which detects low float stocks with strong momentum.
Therefore, if you’re not confident creating your own scans yet, Trade Ideas provides a great starting point.
Low Float, High Volume Penny Stocks
Now let’s see how to find a particular type of low float stock: high volume penny stocks.
Low float penny stocks are extremely popular with day traders. The volatility of penny stocks alone makes them attractive trading instruments. Combine that with a low float, and you have the potential for explosive intraday moves.
However, they require caution. Penny stocks are infamously illiquid. This means you might not get the prices you want when you come to sell them. Even worse, you may not be able to sell them at all, thereby getting stuck with them.
To mitigate this, you need to include a minimum volume filter in your screen.
For example, in the scan shown above, I’m looking for stocks where:
- Float < 50 million shares
- Gap From Yesterday’s Close > 2%
- $0.5 < Price < $10 (general penny stock range)
- Today’s Volume > 200,000 shares (minimum volume threshold)
Additionally, I want to include stocks in the Pink Sheets and OTC markets, since that’s where a lot of penny stocks trade.
Here are some of the stocks that met the criteria.
Aswell as trading volume, I could have also included relative volume as a filter. High relative volume stocks tend to have sufficient liquidity for trading, which is essential with penny stocks. Instead, I’ve just included it as a column so I can eye-ball it.
Fangdd Network (DUO)
One stock that particularly caught my eye was DUO. Not only did it have an insanely low float of 3.4m shares and a high relative volume of 4.94, but it was also breaking out of a flag/triangle pattern on the 5-minute chart.
As such, I bought the stock at around $0.9.
Less than 2 hours later, the stock made an intraday high of $1.52 – a 69% gain from where I bought it!
Unfortunately I didn’t get out at this price, but sold it around $1.27 – a very respectable 41% profit.
Hopefully now you can see the appeal of low float penny stocks, and why penny stock scanners are an integral part of every day traders toolkit.
Read my Scanz review and TC2000 review to checkout alternative penny stock scanners to Trade Ideas.
How To Find Low Float Biotech Stocks
Like penny stocks, Biotech stocks are another fan favourite of day traders. Trial data and M&A activity provide the perfect catalysts for these stocks to rip, which makes them ideal trading stocks.
Trade Ideas has a dedicated Biotech “Channel”, which makes it easy to scan for these stocks. Alternatively, you can apply your scans to custom “Symbols Lists”, containing hand-picked Biotech companies.
In the example below, I’m just going to use the same scan from earlier and show how Trade Ideas’ “Stock Racing” feature conveniently led me to a hot Biotech stock.
To find out more about Stock Racing and how to use it, read my Trade Ideas review.
Stock Racing
Essentially, Stock Racing tells you which stocks deserve the most attention in your scans.
In the image below, you can see that 1 stock, SONN, was winning the most races from my scan.
In addition, it had the exact traits I was looking for: low float, high volume & relative volume, as well as strong momentum.
As such, this is where my attention turned.
Sonnet BioTherapeutics (SONN)
If you want to day trade low float stocks, you need to determine sensible entry and exit points. These usually occur at points of support or resistance, or certain chart patterns.
On the 5-minute chart below (left chart), you can see that SONN broke out of a bullish ascending triangle pattern. This gave me a great entry point at $1.74.
Read this article for more chart patterns that help identify breakout in stocks.
To find my exit point, I zoomed out on the daily chart (right chart) and noticed a big gap. Gaps in a chart tend to get “filled” by a future price bar/candle at some point. In other words, prices fill up the horizontal space left by the gap. Therefore, I set my profit target at the top of this gap.
As you can see, it didn’t quite get there. However, on the 5-minute chart, you can see 2 failed attempts to break above $2.50 and a chart that looked like it might roll over. This weak price action, and the fact that it was close enough to my target, made me sell for an average price of $2.36 – a 36% profit in the space of an hour!
How to Trade Low Float Stocks
The most common way to trade low float stocks is day trading. Day traders look to get in and out of stocks within the space of a few hours. They might even re-enter the same trade multiple times, providing continuous profits throughout the day.
This “rinse and repeat” strategy on an intraday time frame is otherwise known as “scalping”.
The secret to successful scalping boils down to the following steps:
- Scan for low float stocks (less than 20m shares) that are gapping up in the pre market and have volume of at least 200,000 shares (as above)
- Set up a watchlist of 3-5 low float stocks to monitor throughout the day
- Research any news catalysts
- Determine points of support and resistance on charts, and chart patterns like bull flags and ascending triangles
- Enter trades at support levels or breakouts
- Sell at resistance levels or topping patterns
- Set stop losses to minimize risk
Acorda Therapeutics (ACOR)
ACOR is a stock I missed from a low float scan similar to this. However, it serves as a useful case study for how to find low float stocks with Trade Ideas, and how you should trade them.
As you can see, ACOR was the 2nd biggest mover in my low float scan that day. However, it didn’t start there. It only gapped up 2.7% at the open, and so started the day towards the bottom of the list. This is probably why it wasn’t on my radar.
Had I been paying more attention to the “races” on the right-hand side, I would have seen that ACOR had won quite a few that day.
Looking at the chart, I might have also seen the flag pattern forming and been able to trade the breakout from it. As you can see, the stock price surged more than 40% from that point to the intraday high!
