Today we are going to talk about how to trade micro floats and look at our two latest examples.
I do not recommend beginners trade micro float tickers. I am going to give you a couple of tips on how to react and when to cut losses in the micro float tickers. When you’re looking at a ticker without any type of history, there is no volume or price range in the historical chart. Out of nowhere, the ticker gains 10 million volume premarket and 50 million during the day.
When we’re looking at the volume estimate, we’re looking at pre-market or first hour volume to estimate the total day volume.
For $ACY, this ticker will trade a lot of volume.
If you look at the range, it started to spike from $3 up to $8, so the maximum reward would be $4-5. This is not enough reward for a micro float that is starting to trade higher volume. It will create more range. I did not place any short trades in $ACY on that day (12/28/20) because I knew this ticker would trade more volume and you cannot predict how far it is going to go. It does not make sense to short a micro float in such a narrow range. A lot of people were trying to short $ACY and we can see it ran from $6 to $38 without any type of pullback.
In this case you don’t want to short this ticker with a float under 2 million.
When the ticker hits your maximum risks, take the loss. Do not wait for a pullback or any potential red candle, just cover your shares and get out. This is what I do all the time so I can keep myself safe. The major mistakes are when you’re waiting for a pullback on a micro float and it never happens, causing you to take a large loss. The only way to potential trade this would be to take a short around the $28 bounce, but the stock has already dropped about 75% from the top. Let me explain why shorting $ACY at $28 is not ideal, lets look at some of the tickers from last month.
$WNW went parabolic in the morning (12/17/20) and dumped from $160 to $72, that’s about a 50% drop from the top.
It instantly recovered and consolidated then dropped from there. The difference between $ACY and $WNW, is that it was a natural reaction from traders trying to dip buy and sell at the top for $WNW. $ACY is different because it was halted, a T1 halt, not a volatility halt. The difference is that the T1 halt is usually because of news, such as an offering; or they say they don’t have news and the stock drops 35% from the top. When the stock is too volatile and there is too much range, they will halt it for 5-10 minutes depending on the exchanges.
T1 is a more severe case for the stock to drop from the top and they usually don’t come back.
The same thing happened with $UUU, it dropped and never recovered.
But when it is a volatility halt, if the stock drops 50%. There is a better chance that it will bounce before dropping again. Make sure you understand which halt it is so you can adapt your trading strategy. There is another advantage you have when trading micro float, the higher the price of the stock, the less shares that investors can buy. Let’s say I have $1000 and the stock is at $1, I can buy 1000 shares. But if the stock is at $100, I can buy 10 shares. The higher the price of the stock, the less shares I can buy. This means that the stock will end up having a much larger float because I cannot purchase that many shares. This applies to every retail investor.
In this case, if the stock goes to $100-$200 there will not be enough demand to satisfy the supply, in this scenario the stock is likely to gap down or have a halt. The third point is to look for consolidation before shorting a stock on either day 2 or 3. Never short on the first green day or into a parabolic (even with a high gain %). $ACY went from $6 to $38 and was up roughly 1300%, people will use the gain percentage as a guide to short into. Stocks like $ACY & $WNW both went parabolic in the morning and no one can tell where it is going to stop. In this case, wait for consolidations or do not trade it at all. In $WNW there was a consolidation to take risk off, but the overnight fee is too expensive.