Low floats Strats, recaps and more by Fernando @BBT

[nandoo89 19]

Fernando's Low float blog post 1

 

Good afternoon guys,

 

I would like to start this thread to discuss some of the strats, rules, psychology, recaps and so on in the low float world. A Lot of our guys are interested in low floats and some of the other guys would like to learn to be more well rounded; whatever your reason is to read this "blog" I hope it helps you in a positive way.

 

Today I want to touch on some basic rules and set ups I use everyday.

Because of the nature of small caps you have to set up rules to minimize the risk that comes with trading low floats. Let's highlights a couple of those:

- Recognize your strengths; accept your weakness:

Off the bat low floats are not for everyone. It is a fast, high risk, niche type of trading, if this type of trading does not fit you style it's okay to find something else, don't force something unnecessary. It will save you money and stress. I eliminated all other trades, setups and stocks that I don't do well off my playbook, I only trade what i'm "good" at it. An example of trades I wrote off my book are pre-market high break. I have more losses at this strategy than winners, so why keep doing it? 

After recognizing if low floats is your thing, develop a play that you see success and stick to it, develop that, make it better everyday, polish it. My favorite set up is a bull flag or first candle to make new highs, well go over that with more details soon.

- Don't chase; avoid FOMO:

Low floats can run points in a matter of seconds, literally seconds. One of my biggest rules is to wait for a pullback regardless if the stock is moving 3 points without me. Sometimes these pullbacks happen inside a one minute candle but for the purpose of this rule lets keep it basic and say that is a more well defined risk to wait for one or two candle of pullback before getting in. This pullback will give you a more well defined "bottom" or stop loss and a better entry, minimizing your risk.

- Wait for the set up to form; don't guess:

Lots of people like to trade low floats because of its range and potential for a big reward, but thats is also true for a big loss. My next rule is to wait for the set up to come to you. Do not anticipate a move too much unless is obvious, but again for the purpose of this thread let's not anticipate anything and keep it simple. The most used set ups in low floats are "momentum break", "first one minute candle to make a new high" or a bull flag/ABCD, so wait for the set up to form in front of you, don't "guess" is the right time to get in, you can visualize the setup forming in front of you and than get in with confirmation of volume, order flow, level two and so on.

- Tight stop; make it or break it:

A important rule that helps me a bunch is to keep a tight mental stop. Low floats are trades to be done at a breakout point, if you don't get instant resolution at that point, than you better off exiting the trade with a small loss or break even and getting back in another time. Remember, the same way the stock skyrockets it can plunge like a rock. Breakout point is the key word.

Those are simple rules that you can apply in your trading routine and hopefully will help you somehow. We'll revisit rules, pointers and more on upcoming posts, now let's break it down a basic strategy that I use everyday.

 

On the picture attached we have a crystal clear set up that defines the basics of  the play. $MTSL popped up on the scanners last week, so I went over my process to see if it was worth it:

-Volume (check)

- Daily levels (check)

Intraday activity (check)

 

 

So $MTSL made a pretty decent move from 1.70$ to 2$, in this play we need a strong move upwards to show us strength with decent volume on those candles (#1 and #2) so than the waiting game for the setup to form started. After the strong first push we have a really "weak" pullback to the vwap. When I say weak pullback im referring to the volume, play close attention on how much less volume we had on the pullback (#3, #4, #5) that tells me that people are not just yet interested in shorting the stock, most likely we have traders taking profit, also we have the vwap and 9EMA around that area, that gives me a well defined risk and some sort of support.  My next step here is to look for the breakout point and that would be the 1st candle to make a NH (new high) with confirmation of volume, lvl 2 and tape. I got in around 1.95$ when I saw volume picking up (more than we had on the previous pullbacks), level 2 looked good, so did the tape. Volume is another indicator that I use to confirm a breakout, on candle #6 we can see that spike in vol. My first target was 2.15$ and the rest for a bigger move or out BE (breakeven). 

Like mentioned before, this is a very basic concept of low floats, that offers better risk management when trading those stocks. As you progress in the "World of low floats" you will develop into more advanced trades by getting lots of screen time and experience. The important thing here is to follow steps into developing as a trader. You don't want to jump in with 1000 shares on your first trade or maybe don't even try these out live right away.

One last tip for todays post. Don't skip steps in learning, there is no magical shortcut, only hard work. If you are a beginner, embrace that. learn the basics, the patterns and than move into a simulator. Be a master of your tools and execution. Than start small. After all that stop losing alot of money, lose less, get to break even, make a little, than make more. Aim for consistency

Understand that trading takes time to develop, be very meticulous with your learning experience and put all you got into learning (not all your money, just all your efforts). If you are serious about trading, you will need to work hard, it's not a game for everyone, but you need to give it your best shot to find out if its for you.

The markets is a "eternal learning experience" and we all learning here.

Hope this post can help all of our members in a way and looking forward to post more

 

Best regards, trade safe and follow your rules.

 

Fernando Duarte

 

ps: Pardon any grammar mistakes, this is my second language.

[bbt 1]

Hey Fernando,

Great post and thanks a bunch for sharing.

Questions:

• Your entry at $1.95, you mention "level 2 looked good, so did the tape". 
  • Would you mind sharing what details in L2 and the tape hint at the next move?
  • For tape, I look for price hesitation (small lot sizes + small price changes + slow order flow) followed by bigger price gaps up/down and faster order flow on tape. But on L2 I haven't seen the signal vs. noise yet.
• Earlier in your post you mention Volume, Daily Levels, and Intraday Activity checks in your process
  • Volume I'm guessing you're looking for a certain amount of higher than normal relative volume, say RVol of 1.5+ or 3+, etc.
  • But for Daily levels and Intraday Activity, what are you looking for here?  Making new all-time highs?  Average trading range (ATR)?
• How did you choose $2.15 as a first price target?

Thanks again, Fernando.  Very generous of you to share your time and experience with the community.

- Ben

[nandoo89 19]

Of course Ben,

-So as for L2 I would look for many orders on the "Ask" as Andrew points out sometimes on his recaps that a "heavy ask side" can be bullish, although I believe the tape tells a better story, I look for the same things you looking at and an imbalance of orders on the ask going through as well if that makes sense. Its very hard to explain "tape", it's something you need to watch over and over again like a tv show and you will develop a "feel" for it (even though I hate using this word in trading).

- For volume is more of a liquidity matter I just need to be able to get in and out with certain ease, if its trading more than X amount at a specific time of the day(well I guess that's Rvol lo, anyways), another pointer is I tend to be away of stocks that are too crowded as a retail trader, liquidity is good but as a retail trader I don't "have a say" on stocks that are been traded by co or props specially on low floats.

For daily, Ideally the stock should be trading above those levels (daily EMA's), so we don't have any overhead resistance too close caping the move. ATR is usually pretty good on low floats so that's never an "issue", plus I like when they are former runners as well.

2.15$ was the top of the pole or HOD at that moment (that been a mental resistance)

Very simple concepts, nothing to crazy 

Hope I could answer a few of you questions and help a bit. @bbt  Ben!

Best regards,

 

Fernando.

Edited July 6, 2018 by nandoo89

[PeterD 49]

This is fantastic, Fernando. Thank you or posting!

[nassarsyed 82]

Beautiful thread. Looking forward to more posts!  Thank. You

[Aiman 86]

Thank you for your effort Fernando! Keep this updated, and I'll keep an eye on it :D)Much appreciated))

[Brian Pez 28]

Nice overview on the process you follow to trade low floats Fernando.  As with all trading, a good entry is critical. 

Thanks for posting.

[ALG 1]

Fernando,

Is the yellow dotted line 9 EMA? Gray line 20 EMA? Blue line VWAP?  I'm fairly new, trying to follow along here.  

[bbt 1]

@nandoo89 Thanks Fernando for the extra details & clarity on  how you're looking at Volume, Daily Levels, Level 2.

I see what you mean by MTSL not having overhead resistance on Daily Levels.  Price was well above the 13, 21, 55, 144-day Moving Averages when it hit $2.15.

And at that price MTSL was way above its usual trading range (chart below is showing 20-day, 2-standard deviation Bollinger Bands, curvy red lines above/below for those unfamiliar).

[nandoo89 19]

@Marek Thanks for the reply Marek, Will definitely be uploading some live trading and video recaps in the following posts. Also I use the same scanners as Andrew, they setting are a bit cleaner and filter some "unnecessary" stocks out, be sure to check on resources on the members area.

 

@ALG The dotted line is the vwap, the gray is the 9 ema and the blue is the 20 ema, no worries, keep up the good work!

 

@bbt Yes BBT exactly, ideally no overhead resistance is a positive aspect for me

[nandoo89 19]

Alright guys quick recap here just because the stock we were talking about in the first post made a great move today (7/10/2018)

 

As we discussed earlier on the week $MTSL is a former runner and gapped up today again.

I took two trades on $MSTL and i'm very disappointed on how I traded that today. Let's break it down

 

TRADE 1* My first trade was around 10:25 am after the stock got in to a halt. I jumped in at 2.10 for the first one minute candle to make a new high but something was not right, not to blame the platform or the internet but it was "choking" on the break out point, not moving organically, so I decided to get out at BE just to avoid a big loss, not too late after it made the move I was looking for but I was flat. What really makes me mad about today's trading session at $MTSL is that I didn't take the best opportunity $MTSL offer to us.

After the halt and my first trade the stock consolidated beautifully above the vwap with very low volume on it, forming a beautiful flag or ABCD or whatever you prefer to call it. I hesitate to get in because of the earlier "weird" action on it and missed the best move of the day on it. TRADE 3* I would like to point it out that the pattern that formed from 10:20 to 10:31 is a picture perfect pattern that we discuss on the first blog post. At that point the stock was above daily EMA's and closest pivot, made a nice push and after the halt it stayed strong, it consolidate with low volume and above intraday EMA's + VWAP and we had volume confirmation (picking up) on the breakout point. Everything that I look for was there, my only concern was some external interference that made me hesitate on taking that move. Very disappointing.

TRADE 2*After missing the best opportunity of the day, $MTSL got halted again and I "rinse and repeat" the process, maybe this time a bit riskier considering that it made 2 or 3 big moves intraday already and we were far into the morning. I decided to take a small size trade after the halt on the first one minute candle to make a new high for a small profit. Not the most amazing trade but there are elements of what we discussed in terms of strategie on that trade as well.

TRADE 4*As I was wrapping up my day our member Joshua pointed it out that $MTSL was still looking good on the 5 min chart and damn right it was. I usually use 1m 3m and D for my charts but I will go back to the 1m 5m and D in view that it gives me a better picture on the current markets for low floats, the 3 minutes has given me a lot of "false" information on the market we are right now. If you look at the 5 minutes chart there is absolutely no difference on what we look for on the 1 minute. We have a big push, shallow pullback and the first 5 min candle to make a new high with volume is your entry. As the morning fades and we get closer to 11:30 am and 12 is better to trade bigger time frames, it will help you avoid fake outs and give better resolution than in the 1 minute chart.  Thanks Josh!

Finishing the day green but not proud at all.

That's all for today guys, stay tuned on "blog post 2" where we discuss a more indepth aspect of trading, maybe a live trade, another stategie or another recap, today I just wanted to share this quick recap with you.

Have a great day, follow your rules and trade safe!

Fernando.

Edited July 10, 2018 by nandoo89

[Vanhatai 0]

Hi Fernando. Thanks for your efforts and great info!

I have a question about your first trade, right after the halt. What exactly was the idea - new high after resume? Were you waiting for some price pullback, even momentum? What was the entry - direct market, limit or buy stop (entry) placed beforehand?

Thanks for sharing.

>gb

[nandoo89 19]

@Vanhatai Vanhati thanks for the question. I will go ver halt trades in more details in a future post but the idea follows the same concept of the main strategie. I would wait for a pullback and than get in on the first minute candle to make a new high if there is volume confirmation, so yes a pull back and momo.

If i'm not mistaken my entry was at 2.10$ but like I mentioned before it wasn't moving organically ( not sure if was just me, my plat or internet) so to avoid a big loss I got out at BE, funny enough we got 2.30 and that was the move I wanted.

I usually get in with a limit order at or a bit before the breakout point, if I don't have a small position built up already from a pullback entry to support (very rare for me to have it).

Hope that could help a bit

best regards,

Fernando

[Vanhatai 0]

Thanks!

[Carlos M. 232]

Nice Fernando, good stuff.