The Correct Way to Trade Low Float Stocks

The Correct Way to Trade Low Float Stocks

The Correct Way to Trade Low Float Stocks 1024 546 Steven Dux
Welcome back to

this week's lesson.

Today I want to talk about trading micro float stocks and what to watch for as a beginner. Starting with $ARCI, we see a huge spike from $3.50 to $7 on the first green day, which leads many people to short because they see the big consolidation crack afterward.

STOCK TICKER:

$ARCI

However, $ARCI isn’t a stock I’d short into when we can watch the consolidation try to crack five times in a row.

If you short into the crack, the stock reverses, but if you short into the bounce and reverse into $6.30, you find where to cover. Typically, low float cracks don’t hold that much strength to come all of the way back to spike again. It’s best to remain cautious around micro floats on the first green day and remind yourself that this situation can be easily manipulated. The following day, $ARCI does damage to those traders going long.

AN OVERSTAYING

GAP-DOWN

When you see overstaying gap-down, the minimum volume needs to be at 100,000 in one candle, and that’s just not the case here.

On this day, we see a candle only nearing 50,000, which isn’t sufficient and caused the stock to squeeze. During this squeeze, it only needs the minimum low-volume to spike from $6 to $9, which means liquidity is really low. Not only that, because this low float is on SSR, the panic and spiking percentage will be amplified more than normal tickers. Having a low float on SSR, there’s going to be a huge spread.

If you want to enter the breakout level at $7, your execution will actually be $7.50, which means you only missed $.50 in the beginning, but when you exit, you’ll exit with $.50 less; that’s how you miss $1 when you’re trading low float. Now, assuming that $ARCI decides to dump because there’s manipulation pushing the stock up, we will see holds every couple of seconds, and you won’t be able to get out.

Because of that, you'll take a loss due to the low liquidity and end up with terrible fundamentals making it challenging to find the support to dip-buy.

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