The hottest stocks right now are low floats…
It doesn’t matter if they’re Israeli security stocks, drone stocks, or biotechs.
Yesterday we had low floats running in premarket in all kinds of sectors.
And we focus on low floats because they have the potential to be the most explosive runners…
But the volatility can work both ways … And these stocks can move fast!
As a new trader, you must be aware of the risks.
So today I’m sharing three risks of trading low floats so you can go into your trades with the information you need to be able to make quick decisions.
3 Dangers of Low Float Stocks
Everyone’s looking for the next Tempest Therapeutics, Inc. (NASDAQ: TPST) after it shot up 3,500% on Wednesday…
If you had StocksToTrade’s Breaking News Chat, you could’ve caught an even bigger move since they alerted it after hours on Tuesday.
TPST has fewer than eight million shares in the float.
And after its incredible gain, another low float stock shot up immediately after hours…
Secoo Holding Limited (NASDAQ: SECO) gained 500%+ on no news. But the Breaking News Chat still alerted its move…
SECO is another low float with fewer than two million shares in the float.
Then yesterday morning we had a ton of low float runners…
- OpGen, Inc. (NASDAQ: OPGN) with fewer than nine million shares in the float.
- ParaZero Technologies Ltd. (NASDAQ: PRZO) with around six million shares.
- Jaguar Health, Inc. (NASDAQ: JAGX) was up 118% in premarket with around 14 million shares in the float.
But JAGX ended up failing and OPGN halted like crazy and eventually failed. So it’s important to know the dangers that plague low-float penny stocks…
Halts
Since low-float stocks are so volatile, they’re prone to volatility halts.
Stocks can halt to the upside or downside. And getting caught in either can be scary…
You’re stuck in a position and you don’t know if the stock will open lower or higher. That’s why I have one important rule for trading halts…
Exit your position as soon as the stock reopens for trading.
That can cut out any emotional mistakes later — just get out of the position. And if the stock settles down in the afternoon, you can always look to re-enter.
But look at TPST on Wednesday as an example…
A volatile stock can halt all day. And that makes it tough to trade.
Learn my three tips for managing a trade stuck in a halt here.
Dilution
Penny stocks are often in business to sell stock…
They might not have a product or drug (in the case of biotechs) on the market. And they need money to pay the bills and continue to develop their products.
So when good news comes out or if a company’s stock starts soaring for no reason, chances are they’ll take advantage of it to sell shares to investors.
They usually sell those shares for much less than the current market price.
And then the investor can turn around and sell those shares into the market and pocket the difference…
All while tanking the stock.
But they don’t care. The company and investor got their money…
And that’s why we don’t hold penny stocks too long.
Chat Pumps
Pumpers like low float stocks for the same reasons we do … Because they can have volatile moves.
And pumpers can manipulate the stock more easily since the float is smaller.
But nine out of 10 chat pumps fail at the open…
That’s because the pumpers are selling into their sheep followers who are buying.
Taoping Inc. (NASDAQ: TAOP) was a low float chat pump yesterday and it gave back its entire premarket move, plus some!
TAOP chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
That’s why my biggest rule for chat pumps is to wait until 9:45 a.m. or later.
If a pumped stock can survive through the morning, it can often have explosive moves.
When you’re aware of the dangers of low-float stocks, you can be better prepared to manage risk while taking advantage of their crazy moves to the upside.
I go over lessons like this every day in my morning and noon live webinars.
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Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade