The key to making smart trades? Considering all the variables.
Wait, what variables are we talking about, exactly? Hint: it has to do with float and volume… In this episode, Stephen Johnson schools Kim Ann Curtin on things every trader should consider before executing an order.
Variables for Traders to Consider
So what are variables in the context of these lessons? Stephen defines them as pieces of evidence that can help you decide whether a trade is a solid idea.
You can consider a number of different variables to be trade pros or cons. By considering them, you can make more knowledgeable decisions — like whether to go short or long on a trade.
The idea of looking at different variables is nothing new. Plenty of trading mentors use this concept in their teaching…
Tim Bohen calls it building the case. Tim Sykes calls it the Sykes Sliding Scale.
Kim wants to know if is this kinda like an attorney building a case. Stephen calls that a “sick metaphor” … we’re pretty sure that means she’s spot on.
Why Do Variables Matter?
There’s so much that you don’t know as a trader. But some things you can figure out through research and using a mix of technical and fundamental analysis.
And when you review what you know about a stock or its past performance, you can make more intelligent trading decisions.
Sometimes, the best trade decision is to walk away. Just avoid it entirely. But you really only figure that out by considering several variables — like the ones Stephen and Kim discuss in this episode.
What Are the Variables?
There are plenty of variables, but today Stephen and Kim discussing two key examples: float and volume.
Float is the number of shares publicly available to trade. Don’t confuse that with market shares, which include privately owned shares not available to traders or investors.
In essence, the float is the number of available shares that could change hands reasonably throughout the course of a trading day.
According to Stephen, float is relative … But he’ll also say a low-float stock is a stock with less than 10 million shares. He explains to Kim why these stocks can potentially be great for building your account. But you gotta be careful — they come with plenty of risk.
He digs into the difference between low-float and high-float stocks, and why traders might be interested in each.
Key question: can a stock’s float change? Yes, but not often — it takes a reverse split or an offering. Stephen explains the basics of how this can affect a stock.
Volume is the number of shares traded for a given stock throughout the course of a day.
But Kim has some questions … How is volume calculated? Does it change throughout the course of the day?
Stephen talks about how the volume is live and ongoing. It’s like a human, it has a heartbeat. But it dies at the end of extended-hours trading and comes back to life premarket.
Putting It Together
Today’s episode can help you better understand how to look float and volume for a potential trade.
Stephen guides Kim through how float can create pressure. He also explains how float works with volume. Tune to learn why low float can make a trade more of a “crazy gamble” — and how some savvy traders learn to use this as an advantage.
Looking at variables like this has changed the way Stephen trades … He’s much more methodical these days since he has a solid foundation of trading knowledge.
But Kim’s questions are helping him stay in a beginner’s mindset … That’s a good thing. It’s important that traders stay nimble and don’t get too set in their ways.
Stay tuned for future episodes. Stephen will break down more trading concepts for Kim as she continues on her penny stock trading journey.
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