The Origins of Float Charts

The Origins of Float Charts
The Charts Discussed are at the bottom of this Page

Hi I'm Steve Woods. Welcome to FloatCharts.com.

Thanks for taking the time to read this introductory presentation. You're about to learn some VERY powerful ideas about the stock market. These ideas will change the way you look at stock charts. They will change the way you think about supply and demand. They will change the way you think about bottoms and tops. These ideas are a water-shed event in the history of stock charts. In a private conversation with famed market technician Martin Pring he told me that I had discovered the secret to the stock market.

I'm going to share these ideas with you and I'm going to start by telling you how they were discovered.

I started studying the stock market back in 1990 just before the Desert Storm war in Iraq. Now around this time I was reading Vic Sperandeo's book Methods of a Wall Street Master. I was so impressed with his ideas that I decided to read every book that he recommended in his bibliography. One book that he mentioned was called Truth of the Stock Tape by a controversial trader named W.D. Gann. Gann is controversial among professional chart analysts known as technicians. Some technicians think Gann's ideas are useless but I came across an idea in Gann's work that completely changed my understanding of stock charts.

In order to understand these ideas I have to define two important terms: float and float turnover. When a company comes public it issues shares outstanding. The company's management known as insiders always holds some percentage of these shares. What's left over and is sold to the public, is called the float or floating supply. So the float are the shares actually available for trading at any given time. The second term float turnover I actually came up with myself. A float turnover as I define it, is the least amount of time it takes for the entire float to change hands once.
What this means is that if we add up the number of shares that traded over a period of time and the number is equal to the company's float then that distance on a stock chart is a float turnover.

Now I'd like to read to you the passages in W.D. Gann's book Truth of the Stock Tape, that had such a powerful impact on my understanding of stock charts. In one passage Gann talked about the amount of trading volume it took for a stock he was studying to make a 23 point move to the upside. He said that 1.6 million shares traded hands which was "five or six times the floating supply." In a separate passage he talked about a stock that was "changing hands about twice each week."

Now think about what Gann is saying here. He's talking about the floating supply, the shares actually available for trading and he's saying that the float in one stock changed hands or turned over three times in its run to the upside and in the other quote he's saying that a stock he was tracking had its float turning over twice in one week.

Now when I first came across these ideas in Gann's book back in the early 90's, I had seen a lot of high flying health care stocks that would run up 30 or 40 points over a couple of months. And then after they reached say $60 or $70 in price they'd turn right around, head lower and come right back to where they started.

Now in my head I combined Gann's idea of the float changing hands over a certain distance with these high flying health care stocks that I had seen go up big time and come down big time and it occurred to me that there must be some place right at the top of the chart where the float turned over and whoever bought right in this float turnover right at the top got stuck when the price dropped below them.

Now to see these ideas visually, look at the three charts of Med-Design MEDC, that are seen below. The first chart looks a lot like the health care stocks that I'd seen back in the early 90's. It went up quickly and then came down quickly in sort of an upside down V shape. The second chart shows Gann's idea of the float trading hands several times during the run to the upside. If you add cumulatively the volume of the shares traded from March 22, 2001 where the closing price was $12.25, to the very top day of July 26th where the closing price was $42.15, you'll find that the total shares traded is 18 million shares. Med-Design's float was 6 million shares. This means that in the run from $12.25 up to $42.15 there were three float turnovers. Look at the 2nd chart and you'll see that I've marked the distances on the chart to show where each float turnover occurred.

Now look at the third chart of Med-Design. It shows what I call a float turnover box right at the top. This is where the DUMB MONEY bought shares at exactly the wrong time. Anyone who took a position during the float turnover at the top quickly saw their shares quickly lose value as the price dropped down and away.

Now in my early studies of the stock market I learned that selling a stock at the right time was VERY important and so when I discovered that float turnovers occur at the top of stock charts I saw my discovery as a tool for help me learn when to sell.

In addition I realized that if there was a float turnover at the top of charts then there must also be a float turnover right at the bottom where the smart money was accumulating stock.

The idea that the shares actually available for trading change hands at tops and at bottoms was the beginning of my work with what eventually became Float Charts.