All right today, we're gon na be talking about stock, splits, both reverse and forward.. I'm gon na break down a little bit.. You know what are they? Why do they happen, But then also I'm gon na wrap up with some trading strategy, ultimately to help put the rubber to the road as they say. All right.

That being said, I am Lead Trainer with Stocks and Trade Tim Bohen.. If you're looking for interesting and compelling and actionable trade ideas, definitely check out the StocksToTrade Advisory., You can hit that link. Below.. I'm live every single morning, 8:30 Eastern.

Many of you might remember, on the YouTube channel. I went over two years live every day.. I'm still doing it. It's just now.

It's on the StocksToTrade University site. Hit that link below for the StocksToTrade University. All right. That being said, let's get to work..

So what are stock splits and why do we care So I'm gon na start out with reverse splits, because I know a lot of penny stockers out there like to look at these and listen for several years. It was a great trading strategy, so bear with me.. Roughly about two years ago, we saw so many of these beat-down penny stocks that would do reverse splits to get their stock price up to maintain NASDAQ compliance.. Now, ultimately, fundamentally, you know nothing changes when a stock does a reverse split..

So let me hear me out.. So why do they? Why does a 10-cent stock do a 200-for-one, reverse split? What that allows them to do is get the stock from 10 cents to two bucks. So then they can maintain NASDAQ price requirements and stay on the NASDAQ and not get kicked down to the OTCs. Okay..

Listen OTCs are great trading stocks, but everyone knows.. Hopefully you know., If you're new, you might not know this okay.. Everyone knows that all OTCs are scams. Every single one, of'em.

There's been like two OTC pink sheet stocks that have ever like actually succeeded in the world. Out of you know, tens of thousands okay. So people just day trade them.. Now, when you're a NASDAQ stock doesn't mean you're any higher quality or not., I mean there's plenty of trash companies on the NASDAQ but a lotta.

These companies are trying to raise money to actually try and do business.. They mean well okay.. No OTC stock means well okay.. They just wan na sell you paper, okay., That's all they wan na do.

Sooner you get and remember, that's not a bash against OTCs. They're, amazing trading opportunities. If you know what you're doing and what you're trading. They're just selling papers selling you shares, so they can go, buy cocaine and Lambos okay..

That's all they do. NASDAQ stocks, a lotta. These companies are actually trying okay.. Most of them will fail, but they're at least trying, and how do you especially like in a biotech stock? You know very capital-intensive industry.

You got ta spend millions and millions and millions in R & D, FDA studies.. You know it's just it's a very front-ended business and actually we have a biotech video where I talk several biotech videos where I talk about this, but you know it's. Ultimately, you got ta, spend a lotta money up front to then potentially have a blockbuster drug and then you make billions. But you know you got ta sell stock to do that..

So if you can stay on the NASDAQ and get people believing you're gon na get the press releases out, you can keep funding that R & D or your R & D on a real product and you can stay in business.. So they don't wan na get. Kicked down to the OTCs'cause, they know what people think of them.. So what they do.

What you got ta remember is nothing changes.. All they're doing is reducing the amount of shares outstanding to increase the price. So think about it.. If it's a million market cap.

Okay, easy numbers for me to do the math in my head.. I don't have any notes okay.. So let's say the market cap of the stock is one million and it's trading at $ 1. Again we'll make it easy on me okay..

So it's $ 1 share million shares outstanding market cap equals $ 1 million., The entire company's worth a million., So they wan na trade at 10. Bucks a share. All they're doing is a legal filing to reduce the number of outstanding shares to increase the price.. So if they do a 10 for one reverse split, all that does is reduce the amount of shares outstanding to 100,000.

Okay and then now the stock's gon na trade at 10 bucks. 10 times 100,000, one million market cap. Nothing changed in the business.. Nothing changed in the dynamics, but again we recognize a year ago a lotta people were using this as a catalyst, as simply as a reason to run these stocks..

Now that will come back.. I think that will come back and a great way to know when trends shift StocksToTrade Advisory okay.. So that's the mechanics of a reverse split. A couple years ago it was one of the hottest trading strategies..

I probably got videos from you know: 2019.. Basically, the reverse split idea: kinda went away when we went into 2020 and meme stocks were the rage.. You know it's just. It was a hot sector..

So now, let's talk about forward splits in the mechanic okay.. So like Amazon is the next one up.. You can see huge gap up last night that they announced a 20 for one reverse split, so that's gon na be ha ha. That shows you how dumb I am.

So trading at roughly 3,000 a share so 150 bucks, so after depending on when they had the forward split, scheduled, Amazon's gon na be trading at or around 150 bucks.. Now why do they do it? Why does Amazon want to reduce the price of their stock? Now understand? All they're doing is increasing the amount of shares, and then that will drive the price down to 150. Market cap's still gon na be roughly 1.5 billion. They're just gon na expand.

The number of shares by 20 times, which drives down the trading price of the stock to that 150 bucks., Doesn't change. Anything fundamentally. Doesn't change anything about the business. Just one day.

It's trading to 3,000. Next day, it's trading at 150.. Now, why do they do that? Listen, maybe you're one of those people.. Maybe you believe in Amazon..

Listen, hey! It's funny. Like I worry about, like the UPS guy. If I don't get a box from Amazon., I'm like man, I hope he's okay., No UPS truck today, yo. So I mean especially with the pandemic.

- I mean amazing trading opportunity in Amazon, an investment opportunity. Okay, but many of you are probably here'cause. You got small accounts., I mean what are you gon na? Do You gon na, buy one share of Amazon two shares and then hope it goes. You know hope it doubles.

You know It's one of the biggest market cap stocks in the world.. I mean you trading two shares of this thing. One share of this thing tying up your small account. You know it's tough., You really can't., So they wan na reduce the price, because that way, average Joes and Janes can buy 100 shares.

You know, can maybe buy and listen. Maybe you got a bigger account.. Maybe you can buy 1,000 shares or something or you know, but it makes it more accessible again to the smaller traders to the retail traders.. Now, how do you trade'em? Ultimately, you wait for the split to happen..

Okay, I know a lotta people that buy in advance, and you know it's just. The problem is you're gon na wait around and you're just playing a guessing game.. Now, what we look for is wait for the split to happen and then see how the stock reacts.. Now, historically, you know the last few years I mean Apple huge runs after it did splits.

Invidia Tesla. I mean Tesla was already one of the best-performing stocks in the entire market.. They do a split and it went even crazier again. I mean it was wild to see those moves on Tesla and there's a good chance.

The same things happens with Amazon because remember a lotta. These things become self-fulfilling prophecies, okay and don't overcomplicate the market. Sometimes.! Listen! If everybody air quotes, thinks a stock's gon na go up after the split and everybody air quotes just keeps buying and buying and buying that creates demand.. What pushes a stock price higher? You know more demand more volume., So we've seen it repeat and repeat and repeat..

It's again, especially with the Apples, the Teslas, the Invidias and again I predict the same on Amazon., So exciting times.. I like to see it because a lotta people forget about Amazon from a day trading. Standpoint. Again, you know what are you gon na? Do You know? I mean listen if you had one share, you're up pretty well..

You know your stock's up 150 bucks today, but still it's a $ 3,000 position and 150 bucks.. So it's just difficult to day trade. These and the nice thing is when the split happens. Everyone's gon na be talking about it.

Everyone's gon na, be you know: Amazon, Amazon, Amazon and there's a good chance. It's gon na really create short-term day trading opportunities and, ultimately, probably a good swing or investing standpoint.. So all right, everyone drop me a comment below.. This is a little bit more of an educational video, but I get asked about splits a lot..

I mean a lotta people. Don't even you know, especially reverse splits. Very commonly misunderstood'cause people are like ``, Hey, !'''Cause, here's the thing when they do reverse splits. You'll see a stock up 1,000 % and you're like ``, Hey, What's going on with this ?'', And then you look at the news.

You research it and it's a reverse. Split. Stock isn't actually up 1,000 % so that trips people up a lot and then they run and they're like `` Whoa, what's going on here ?'', But so hopefully you enjoyed the education.. Hit drop me a comment.

Below.. Let me know - and we will see you next time -.