A Stock Strategy for Small Floats and High Shorts

Editor's note: This column was submitted by Stockpickr member Roberto Pedone.

Many investors like to pore over fundamental data in an attempt to pick the next big mover in the stock market. Fundamental data research can lead to winners, but sometimes it's only part of the puzzle to finding the big movers in the market.

One of the trading strategies I have used to great success is finding stocks with very small floats and heavy short interest. Any good news, market rumors or improvement in any type of fundamental development can send a stock with these characteristics screaming higher.

The best scenario I have found is to look for stocks with less than 100 million in the float and with a short interest of 10% or higher. Stocks are shorted often for good reasons, so make sure to look at the fundamental story behind the stock before betting on a potential short squeeze.

This strategy is really just taking advantage of supply vs. demand. Once something good breaks for the stock, the shorts have to buy in to cover, and when you combine that with the natural buying pressure you can start to see some explosive short squeezes. Hence the reason to look for stocks with smaller floats and high short interest so that the supply will not meet the demand if something bullish develops.

With all of this in mind, I have set up a portfolio on Stockpickr.com called 10 Stocks With Low Floats and High Short Interest. Let's look at a few names from the list.