In today’s video Steve discusses how to trade low float stocks without blowing up your account with an example from MBOT.
View Video Transcriptin today’s video we’re going to discuss
shorting a low fluid stock without
blowing up your trading account so stick
around
I’m Steven Spencer I’m a partner at SMB
capital we’re a prop trading firm in New
York City where we trade futures stocks
and options and in this video I want to
help you understand a certain type of
trading and what we call low float
stocks and how to approach it and a
logical low risk fashion to take
advantage of one of the more common
trading patterns that we see so before
we get into the actual details of the
trade let’s discuss for a couple of
minutes what actually low fluid stocks
are some sure they’re some of you
weren’t familiar with that terminology a
low folk stock as huh as I define it
it’s a stock that has less than 10
million shares available to trade
publicly there is a sweet spot in low
fluid stocks and that’s about 5 million
shares and so the reason why I low float
stocks can be so good for short-term
traders to trade is a lot of large
institutions are not involved in these
stocks so you don’t have large market
players with algorithmic hfts
involved and you’re really just trading
especially prop traders vers retail
traders going back and forth and
treating these stocks against each other
based on their trading skill and so
that’s one of our favorite types of
stocks to be trading because we believe
over the long run the skills that our
traders develop are going to be better
than most of the other market
participants individual market
participants so when you have five
million share float generally the larger
brokerage firms are gonna have a veil
shares available for you to low key and
so you’ll be able to trade those stocks
on the short side and when we’re trading
stocks and short term traders we want to
build a trade both in the long and then
the short side so it’s important to be
able to locate shares one of the red
flags I look for is if a low float stock
has under a million shares available to
trade that can lead to very erratic
reading patterns and again this these
are just general rules it could be have
1.3 million shares available to trade in
the float and that still is gonna be
pretty erratic once you get up to 4 or 5
million shares usually you can get that
volatility
let me explain to a little bit why these
low floats dives can have such good
volatility so
you have a stock with five million
shares outstanding a lot of times the
reason they’re so few shares outstanding
is there’s this was a stock that
previously at 50 million or a hundred
million shares and it treated down from
twenty to ten to a dollar maybe even to
50 cents and to avoid getting to you
listed they’ll have like a ten for one
reverse stock split or a twenty for one
reverse stock split and so if you have
50 million shares outstanding and your
stock is down to 50 Cent’s and you do a
ten for one reverse stock split the
price goes up to $5 but the float goes
down from 50 million to five million and
so that’s why we have these lower price
stocks after the reverse stock split
when you have a $5 stock with five
million shares outstanding that’s a
twenty five million dollar market
capitalization many of the senior
traders on our desk will have twenty or
thirty million dollars in buying powers
so in theory they could control the
entire float of that stock and so if a
senior trader on our desk can control
the entire flow to the stock I know
there’s dozens if not hundreds of retail
traders larger retail traders who could
do the same and so when you have a stock
that either a small group of traders or
even an individual trader can control a
large percentage of the flu
those stocks can be pushed up or down
significantly based on them putting on
larger position sizes whether they be
piling it on the short side or piling in
on the long side
so before we zoom in and take a look at
the charts in the morning game plan and
the statistics related to this this
particular trade I wanted to remind you
that we have a two-hour free workshop we
teach three of the lowest risk highest
reward trading setups that are what’s
commonly treated on our desk here in New
York City click on the link above and
you will be taught those those trading
setups in addition the number one thing
that influences or has the largest
determination of your profitability as a
short-term trader is being in the
correct stocks and in that two-hour free
workshop I will spend two thirty minutes
teaching proper stock selection where
you’re going to be able to identify the
most liquid and volatile trading means
and you can see that sign up for that
workshop at trading workshop
calm okay so the stock we’re going to
talk about today is NB ot and this stock
D to reverse stock split which I had
mentioned previously when we were
discussing low flutes and so that broth
brought the price back up from very low
to actually tradable prices again and
another thing to remember is when these
stocks do the reverse stock split and
they can get over $5 then they become
larger noble again and that makes it
easier for retail traders to put on
larger positions in their accounts so $5
is also quite often a key price both on
the support side when it’s going down
and also when it gets back above $5 in
terms of creating momentum in either
either direction so if we look at the
daily chart here for the last couple
years in MB ot what you can see is at
the beginning on the left side the stock
had been above $20 a couple times double
topped and trained it all the way down
to the low low single digits maybe even
like down to a dollar so at the
beginning of 2019 some news came out
some press release doesn’t really matter
for our purposes what it was but the
stock gapped up to about four dollars a
share and then over the course of looks
like a day or two spiked up to eighteen
or nineteen dollars and then trending
down over the next few months all the
way back down to four dollars and for
the last I guess four or five months
it’s really just been moving sideways
between four and six dollars until the
last few days another catalyst came out
stock kind of gapped up if we take a
look at the three-day chart what we can
see is here the news came out on day one
the stock started to move up from from
six dollars a share got up to eat move
sideways and then at the end of the day
spiked up to about twelve dollars so
we’re coming in on day two the stock is
already moved from six to the double
digits and we know that in the
pre-market it had been up about $13 a
share and so we have these on this chart
we’re looking at right here I have the
longer-term potential resistance areas
based on where it spike to at the
beginning of the year so on d2
I should say on day one when something
starts to move up like that you’re
really your focus is on the long side
because most times on one of these
little floats when the other catalysts
they’ll close at or near the high end
day one as long as they take out the
morning high and then I’m day two
they’ll either kind of blow through the
day one hi and have another up leg or
either fail right on the open at the day
one kind of higher pre-market I and then
start to come in in this case on day two
it took out the pre-market I and went up
to those longer-term resistance levels
from from B to came down from 19 to 15
kind of clues in the middle of the range
and then this morning was day three and
they actually were offering in a private
placement at ten and a half dollars per
share around nine hundred thousand
shares so the stock was gapping down
from around 15 to 13 in the pre-market
if we zoom in and I’ve marked up a chart
for you showing you kind of what the
stock was doing in the free market they
were selling it at 13 and a half it had
been down at 12 and a half went back up
to 13 and a half and as the market
opened we were basically gonna look to
see if it could spike above 13 and a
half either fail right there or go to
our first resistance and if we look at
the morning game plan notes you can see
I have 12 as s1 I have 15 as r1 and what
we’re gonna do is what are we were
leaning short because it already had the
blow off top and a to where it went from
99 to 15 close right around that area
gapping down on doing a private
placement at ten and a half and so the
top most likely it was already in and so
if it can spike up to r1 on the open
we’ll put a short there and then
basically go from there and I’ve marked
up in detail this third chart for you to
kind of show you some action points we
have five points where I remembered it
and I just want to go in detail if
you’re thinking about trading this on
the short side how to think about it so
we first of all we have that 13 and a
half double top and the pre-market where
it’s rolled over market opens right away
scrolling drive above 13 and a half what
we’ll look at number one point number
one which is that 15 level and again I’m
where did we get 15 as r1 on our morning
game plan when it sold off on day two
from 19 it’s supported at 59 out of
bounds
there so that becomes our first natural
resistance where people who are looking
assuming that the high is in on this
stock and it’s going to start to trend
lower they’re gonna look at 15 so right
on the open it spikes up to the high for
teens short when it starts to roll over
and come back down below $14 a share
start to scale in and cover your short
the reason why you’re scaling in to
cover your short is you don’t know if
this is going to the be the beginning of
a larger trend all the way back down a11
or $10 what you know is they issued some
shares at 10 and a half and at trouble
at 13 and a half getting above there in
the pre-market and when it comes back
down to that level there’s most likely
going to be some bidders buying there in
fact at point number two I’ve circled
that they’re at 13 and a half when it
came down somebody was bidding for about
20,000 shares covered most of the short
possession as did many traders who were
shorting this unsure experienced traders
they see they’re bidding there because
what happens is if it stops there and
people start to buy very quickly it can
move back above 14 dollars a share you
don’t want to be in a position of
weakness
once it gets above 14 where more people
start to chase it and push it higher and
you can see that’s exactly what happened
it actually took out the opening minute
high where it spiked above 15 and that’s
number three on the chart that we’re
looking at right now if you are playing
this from an intraday perspective and
right now talking about an intraday
perspective not someone what someone’s
thinking about from a bigger picture
trying to capture a move a multi-day
down move back down to 10 or lower and
so when number three it takes out the
morning hide the discipline thing to do
is to have a stop from an intraday
perspective above the morning high you
get stopped out then immediately after
that stop at you see the next two bars
are red it gets back below 15 you can
start to work your way into a short
position and ideally after it comes back
down below 15 is it starts to move
sideways in a consolidation a short-term
traders we know when a stock moves
sideways and a small consolidation we
can control our risk because inside of
that consolidation we can use the top of
the consolidation as a spot to above
that area have-have stops if we’re
building up a short position and below
that consolidation to add to a position
a short position or enter into an
initial momentum short position as well
so get stopped out
makes a new I gets back down below 15
start to move into a fresh new short
position and then as it starts to move
sideways for 10 or 15 minutes you can
start to shorten that in 14 and a half
area which stops about fourteen seventy
fourteen eighty protecting against it
resuming its up trends from the prior
two days
um in this case it actually at point
number four it breaks to the downside so
momentum in momentum is down and what do
we want to do we want to see what it
does when it comes back down to the
pre-market resistance and the morning
low blue morning support pullback
support of thirteen and a half it comes
back down to that thirteen and a half
the at that time there was still a large
bid there that had been there from the
open but it was smaller and then what we
want to see in terms of a trend forming
from an intraday perspective to the
downside is a smaller shallower balance
and so between point four and point five
on the intraday chart we want to see it
okay it can bounce from thirteen and a
half we really definitely not want to
see at about fourteen again but more
ideally sellers will step down there
were at fourteen sixty or so on during
that consolidation if we could see them
step down to thirteen eighty or even in
the thirteen seventies and it’s just a
very small bounce that can really start
to form a downtrend
in this case we did get a very tight
consolidation just above the 1350 and
I’m sure more people are building larger
traders we’re building in their short
positions and there’s the ending of that
intraday downtrend stays intact there
gonna be a position of strength if that
1350 drops and in fact you can see 1350
drops it starts to hold below there you
do have one spike back above if you’re
did short on momentum basis below that
1350 and it gets back above you’re
covering that position but if you were
trading it from an intraday swing
position meaning you’re a building at
point number four and then starting to
build it actually as it’s getting tight
in front of point number five you’re
still just holding and sitting with the
position again as I’m making this video
I’m not sure what it did next
perhaps it broke down eventually and got
below thirteen and continued to trend to
s1 perhaps they’ve had a retest of the
high 13s but but regardless at this
point the sellers are still in control
from an intraday swing perspective
you’re still in this trade and that’s
really the way to kind of control
your risk because we’ve had the blow off
top on day two today it’s spiked to our
rr1 and failed there and what we’re
looking for is once it gets below the
morning low kind of come to our first
support and I think I’m the gameplan
sheet I think we had 12 there so there’s
it’s basically come off about halfway
from 15 down to 13 and a half that’s the
midpoint and we’re looking to do is
eventually get a consolidation below
1350 and continue down to ass one and if
we get a weak close closer down to s1
we’ll continue tomorrow to look for the
sellers to make another lower I some
more lower lows and continue to continue
that trend so this is a low-risk way
after a little fluid stock has gone up
for a couple days putting a blow-off top
to try to capture a larger pullback from
an intraday perspective I hope this
helped we’ll see you next time
