Floating rotation is a reference to the number of times an entire float or available shares are traded during a single trading day. It usually occurs in lower floating stocks that trade with exponential
volatility. It was coined by Nate Michaud, a professional trader and supplier at InvestorsUnderground.com.
What is a floating bag?
If you are not related to trading and need to understand what a floating stock exchange is, don’t forget to check out our tutorial on the impact that the floating stock exchange has on trading.
In summary, floating shares are publicly available shares that are not restricted, owned internally by a company, or generally closely held by institutions.
Imagine a small-cap company (ABC) has 20 million shares outstanding. Employees and company management have 5 million shares. That leaves 15 million shares.
In addition, hedge funds, pension funds and other institutions may have close shares for an amount of 10 million.
This leaves only 5 million shares available for trading.
We would consider 5 million as a floating bag. It is what is left to buy and sell to the general public.
What is floating rotation?
Now that we know the floating park, in general, let’s go one step further.
The small-cap company we mentioned earlier, ABC, typically only trades between 10,000 and 20,000 shares a day.
Very low volume.
Suppose ABC is priced at about $ 3.
However, there is something being worked out at ABC: a product, a sales agreement, a collaboration, an FDA approval, something that deserves public relations.
At the beginning of a trading day, the company publishes the news and suddenly the stock price rises to market volume. At 9:30 a.m., the shares are trading at $ 5 per share and have already reached 5 million shares in premarket volume.
The free float was just 5 million shares to begin with. This day has already traded 5 million shares. Therefore, we would say that the float has already rotated 1 time.
The impact of float rotation
the volatility of a stock’s price movement is inversely correlated with the size of its float. The lower the float, the more volatile it can become in a stock.
Let’s look at some examples of this.
Here is a snapshot of AAPL with over 16 billion shares available on the stock exchange:
AAPL daily chart
Over the course of a month, AAPL moved around 18%. Not bad, all things considered.
But we compare AAPL to a stock with a float of 17 million shares.
EYES is a great example:
Daily EYES chart
Unlike AAPL’s slower and more constant movements, EYES surpassed 2000% in just 4 days. It is true that there will probably be a catalyst –
any news or event – but it remains the point that the lower the float, the more volatility can occur.
Continuing with the EYES chart above, let’s get closer to the stock of the first high-volume day the stock market launched.
What we find is that EYES had traded more than 17 million shares before the market opened at 9:30 p.m. That means he had turned the float at least once.
EYES that is traded through the float in the premarket
As Nate Michaud points out, what happens when a stock float is turned is that we have it
a “refreshment” of shareholders, especially when stocks start to squeeze more and more.
It looks a lot like a ferris wheel. Some traders jump on the route, others jump.
But there are only so many seats on the ferris wheel. And whoever has control, oxen or bears, can determine the direction of the turn.
To understand it better, we observe every time EYES spun through its float during that big day.
EYES float roation intradia
For every vertical line you see in this 1-minute chart, EYES has listed more than 17 million shares. By 12:30 pm that day, EYES had changed the float 22 times. O,
had rotated the float 22 times before 1 p.m..
That’s a lot.
For AAPL to do that, it would have to change 4 x 10
10 actions in a single day.
Do the math.
By the end of the day, EYES had traded more than 700 million shares, nearly double its market capitalization in a single day. Crazy volume.
What does it all mean?
At this point, you’re probably wondering how important floating rotation is.
If you don’t trade the world of low floating stocks, it may not affect your trading as much. As a concept in itself, it just means that many stocks were traded that day.
it becomes important contextually if you are negotiating this type of security.
Because? It all depends on the configuration and the bias.
We talk about it in more detail as part of our VWAP Boulevard Guide. If you have time, it’s worth reading.
Suffice it to say that if you are a biased trader who thinks EYES is too overbought as it goes from 100% to 200% to 1000% a day,
you may want to pay attention to the rotation of the float before you decide to fall short.
Think of this as “FOMO Reverse”. Bears are afraid of getting lost at the top.
For this reason, every 5 minutes or so, there is a complete daily update of the shareholders who list these shares. Remember the ferris wheel analogy?
Shorts are blown up and covered. Then new ones are added, just to let them fly. So on, and so on. The oxen are in control and take the bones for a walk in a direction they don’t want to go.
By the time the ferris wheel is released, it’s too late. Carnival tickets have been sold out to go on another trip.
Now, that’s a bit of a generalization, though, for all intents and purposes, when you see a stock float spinning fast, you either want to be long or you want to pull away.
It can be a dangerous business to ride the low buoyancy wheel with the bulls.
Factors that may affect the float
There are a handful of things that can affect the float of a stock, but only one that especially influences the rotation of the float.
Redemptions of shares, stock bids, insider trading expirations and stock fractions are some of the ways in which a float can be affected. Strong institutional ownership can also create volatility if large funds decide to liquidate their shares.
Regardless, the most important thing to keep in mind during daily trading is usually the company’s offer.
Many times smaller-cap companies will take advantage of public relations campaigns, product launches, or news events to raise money for the company. What better way to do that than to leave more shares of your company in the hands of investors or traders who don’t suspect it?
These offers usually happen in times of high demand and momentum. For obvious reasons,
the company wants the best price for its shares.
However, the impact on shareholders can be devastating.
For an example, see this COCP chart. What was a fantastic bullfight that day ended in a bloodbath.
The COCP boost was eventually offered
The COCP increased by more than 180% on the day the offer was announced.
Although the float spun violently throughout the day, all it took was a bunch of new stocks injected into the market to end the momentum.
We discuss this particular configuration in our Kill Candle explanation. Believe it or not, these events can be anticipated to some extent.
However, this is the
modus operandi in low flotation terrain. Inflate the price, raise money and leave the traders with the bags.
Keep that in mind.
How to find floating data
There is more than one way to find floating data. Yahoo! Finance has floating data along with Finviz.com and others. Here is an example of the basics you can find for free at finviz.com:
Finviz Foundation Snapshot
Typically, brokers also have this data if you subscribe to a platform with key data.
How to practice float rotation
As with any setup or trading criteria, we encourage you to try again and visualize your
strategies in a realistic but safe environment. There is no better way to do this than in a simulator.
Make a sample of at least 20 trades. This way, you will know what your success rate is with this strategy before you put real money to work.
Good luck and rest assured in the market!