Simplistic & Misleading View of Float Charts

View Three Graphics That will Help You Understand Float Charts:

View 1
A Simplistic & Misleading Understanding of Float Charts
Although potentially accurate the graphic below is simplistic and misleading.
Read why at the bottom of this page. See an Example.

Basic info:

Float - the number of shares actually available for trading.

Float turnover - a term coined by Steve Woods. It refers to any time frame on the chart in which the cumulative volume equals the number of shares in the floating supply. Float turnovers are the basis of all float charts and are viewed by a gray box with two red lines (the Float Box). The Float Box shows the shortest amount of time that the float can go through a complete change in ownership.

Here's Why the Graphic Above is Misleading - The stock market is very deceptive. As the saying goes..."when it looks like it's time to buy it's probably time to sell and when it looks like it's time to sell it's probably time to buy." Float Charts are a new paradigm in tracking stock behavior that exemplifies this concept. The graphic above is a case in point. The basic premise is simple and easy. At the bottom, all the shares that are available for trading get accumulated by the Smart Money Individuals and at the top all the shares that are available for trading get sold to the Dumb Money Crowd. The only problem is, if you try to make money using the concept embodied in the graphic above...YOU WILL MOST LIKELY LOSE MONEY! It seems like such an easy idea, "Buy the Breakout above the Float Turnover at the Bottom" and "Sell the Breakdown Below the Float Turnover at the Top." The only problem is...IT RARELY WORKS THAT WAY. The reason is in those small words on the graphic that say Declining Top Float Channel Line and Rising Bottom Float Channel Line. The Declining Line should be thought of first and foremost as a line of resistance. This means that when a stock breaks out above a float turnover, it is most likely going to run smack into a group of investors who bought at higher prices and are looking to get their money back. This is known as overhead supply which drives the price lower. Thus float turnover breakouts quite often go south and not north. The opposite occurs with stocks that breakdown below the lower float channel line. Instead of heading south they often head north.

Here's the key to understanding breakouts and breakdowns and it's the reason that they can be so difficult to analyze: They are a signal of a change in trend. The problem is that you don't know if it's the short term trend or the long term trend that's changing. The stock may be at a long term bottom and be heading higher in the long run, but its short term trend may still head lower first.

View Three Graphics That will Help You Understand Float Charts:

View 2 - Better View 3 - The Best