Big Float, Smaller Targets: A Key to Smarter Trades

Earlier this week, a stock with a 99M float popped up on my Flux algo, and a student asked this question:

“Is the pattern irrelevant based on the float?”

Just because a stock has a higher float doesn’t make a pattern irrelevant. But it does change how you should think about your targets.

This could be the greatest opportunity in 25 years to trade 1 specific pattern

The Big Picture

We tend to focus on low-, or micro-float stocks for good reason. The odds of a medium-, or high-float stock moving like a micro-float aren’t very high.

That said, the pattern is the pattern. It’s just that when you’re dealing with higher float stocks, you have to scale WAY back on your targets.

Why? Because…

A 100M Float Stock Doesn’t Move Like a 1M Float Stock

There’s a good reason why we focus so much on float rotation. Float rotates because demand exceeds available shares.

So, when we’re trading volatile, low-float stocks, float rotation is instrumental to what we do. It’s why low-float penny stocks can make such big moves.

High-float stocks move slower.

For example, on Wednesday (Oct. 14), MaxCyte, Inc. (NASDAQ: MXCT) popped on earnings:

Here’s what I’d look at with MXCT:

• Float: ~99M shares
• Average 60D Volume: 777k shares
• Volume on Oct. 14: 12.7M shares

MXCT needs a ton of volume to make a big move.

Now, if you have a 10-cent per share goal on a stock like MXCT, I don’t hate that. But having anything more than a 10-cent goal is probably unrealistic.

So, what do big traders with huge accounts do? They scale up their position size rather than trying to capture big moves.

Now, you might think, “Tim, that’s what I’ll do. I’ll go for bigger position sizes on less volatile, high-float stocks.”

You could do that, but here’s where it might get you into trouble…

Big Size Offsets Risk and Reward

For most people, making a 10-cent per share gain worth the risk would mean a massive position size. But what happens when you trade big size looking for a small gain and the bottom falls out?

It gets ugly.

Now, I see it happen all the time. I see people all day long buy stocks and sell them for 5 cents a share.

Why even trade it?

Remember, every time you enter a trade, there’s potential for something really bad to happen.

So, why would you accept the risk for 10 cents a share? Even if you can buy 10,000 shares of MXCT looking for 10 cents of upside, you open yourself up to unnecessary risk.

Now, some will wonder how it’s possible for someone with a small account to trade higher float stocks at all. And it really comes down to two things:

1. Volume
2. How long you’re willing to hold your position

MXCT isn’t very liquid. If it suddenly starts trading 50M shares a day, that’s another story.

Likewise, with enough volume you could take a more reasonable position size and swing trade it with a higher target.

But, no matter what, the bigger the float, the more you have to scale back on your profit targets.

My Take

Now, if you’ve got a small account, the best way forward is small, consistent gains. Not looking for big wins or home runs.

You’d be amazed at how quickly a small account can grow by chipping away at it. That said, volatile low-float stocks give more opportunities to lock in those small gains.

Watchlist

Wetour Robotics (NASDAQ: WETO) announced yesterday that it paused further at-the-market (ATM) share sales.

WETO spiked in premarket and then pulled back to base between the dollar cross and VWAP:

If WETO gets over yesterday’s VWAP, I like breaks of the Oracle signal at $1.47, with risk around $1.20. A more aggressive buy would be the breakout over $1.40.

In keeping with today’s discussion of float and volume: WETO is a micro-float stock that rotated the float 111x by 2 p.m. ET yesterday.

On My Radar

• American resilience: real spending growth is similar across all income tiers
• Anthropic let the watchers in yesterday (maybe this will calm Dario’s nerves?)
• Awesome news from Zuck about Muse Spark Open
• The way this pattern works is really simple (and I’ve been trading it for years)