I think it is fair to say the low-float market has been particularly cold over the last few weeks. The very few stocks that do move are hard to trust, and overtrading is easy. The market’s coldness could, of course, go on and on, but we have to turn up every day and watch, as a change can and often is just around the corner.
My preferred trading times are the pre-market and maybe 30 minutes or so after the market opens. However, in a market like the one we have right now, I think it is important to set a concentration period that isn’t too long. It’s key to stay focused when very little is happening. To that end, I favour 6:30 am to 8:30 am ET, with an extension to 9 am if all is going well.
Things that can catch us out right now, if we’re not careful, include excessive small gains (or losses) with associated fees—entering rapid movers that don’t clearly satisfy setup requirements, including poor liquidity and resistance too close to provide a suitable risk-to-reward probability.
Personally, I don’t look too deeply into fundamentals. Still, it is vital to me that I’ve considered a stock’s float and its relative volume, or at least noticed a sufficiently rapid increase in volume that suggests relative volume will soon be in a good place. In most instances, a high percentage of free float relative to closely held shares matters to me because it reduces adverse volatility.
Knowing a relevant news release is driving an increase in trading volume is a bonus, but we often may not know the reason for a momentum stock until most of the move is done. So news is nice but not essential.
A setup involves both the chart and the tape (level 2 and time and sales). When pickings are light, it’s easy to over-concentrate on one (usually the chart) or the other, even though both are vital. If, like me, you’re a technical trader, it will take time to read the tape successfully. Once you do, though, if you’re a low-float stock trader, you will wonder how you could have traded without it.
Another consideration that I’ve noticed with my own trading in a cold market, and because possible trades come around so infrequently at present, is that when I do enter, I can end up staying in a trade that does not react as anticipated either too long because I’ve waited so long for it or getting out too soon before an exit reason presents itself.
Get in, get green, get out is still a good, simple analogy for me, but there’s obviously a lot more to it. To give you an idea of trade strategy in terms of time, entry to exit can usually be measured in seconds or a few minutes.
