Why is it that some stocks make huge moves? What are the mechanics, reasons, and the rationale behind these big moves? Today, Tim Bohen is breaking it down for you.

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First, you need to understand the background, the history, and the mechanics of why these stocks move. Second, here are the terms you need to understand: float, float rotation, supply and demand. Get ready to learn!

Stocks that spike and jump in percentage quickly are called low-float stocks. The float refers to the freely tradable shares of the stock. That’s the supply. Stocks often move because of supply and demand.

The freely tradable shares of the float are shares that aren't locked up or held by insiders. Those are the shares that are recycled throughout the trading day.

So why do we care about that? Think about basic economics. When there’s a smaller supply, there can be more demand. And the price can go up fast. That's why we look at low-float stocks.

You also need to understand float rotation. There needs to be an influx of new buyers, sellers, and somebody willing to bid up — or there's no price movement. Here’s an example: If the stock is publicly traded, has a million shares, and has traded two million shares on the day — that's two times the float. That's called float rotation and you what you want to check it.

Now, have you ever heard of the ‘greater fool’ theory?

It’s the idea behind buying a stock only because you believe that there's a greater fool out there who’s willing to pay more for it. You don’t buy it for any other reason — like thorough research based on fundamentals or future prospects.

That concept can push share prices up if enough traders jump into a stock for that reason alone. So when there are one million, two million, three million, or four million shares traded per day, there's a good chance that that stock will continue spiking throughout the day. But watch out — those gains aren’t based on anything real.

It’s also a key reason to study hard. You want a solid understanding of supply and demand, float, float rotation, and why these stocks move before you try to trade them.


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*Tim Bohen teaches skills others have used to make money. Most who receive free or paid content will make little or no money because they will not apply the skills being taught. Any results displayed may be exceptional. We do not guarantee any outcome regarding your earnings or income as the factors that impact such results are numerous and uncontrollable.

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