2018 has been the year of the IPO stocks. IPO’s have become relatively uncommon in the past 5-10 years, but this year there have been so many hot ones. The latest IPO we traded was QTT, which IPOed last week. We decided to trade the stock on the first day it started trading publicly.
Trading an IPO on day 1 can be very risky, but also have huge reward. It has no price history, so there are no boundaries to how high or low it can go for the day. In the video below, we go over what indicators you should use on day 1, the type of setup you should look for, how you should manage your risk, as well as timing the entry and exit.
Manage Your Risk
The most important thing you need to do when trading an IPO day 1 is aggressively manage your risk. There is literally no price history besides what has happened during the trading day. This means there are no resistance levels to cause the stock to reverse once it breaks out. It also means there are no support levels to stop it from crashing if it breaks support.
This means you cannot get stubborn on your positions in an IPO. When an IPO breaks support, no one knows how far it might fall. It is even more important if you are short an IPO Day 1. It is your duty as a trader, or aspiring trader, to cut your losses.
Add At the Right Times
A crucial component of trading IPO’s is knowing when to add to your position. Adding to winners is just as important as keeping your losses small. Adding to winning positions is what allows your winners to become 3 or more times your average loser. This makes it much easier to be profitable at the end of each month, as you can still be a profitable trader with a good risk vs reward ratio on your trades, even if your win rate is not great.
However, you have to know when to add at the right times in order to capitalize. Adding at the wrong time can turn a winning trade into breakeven or a loser. Even experienced traders like me can make this mistake. Here is a video that will show you how to add at the right times on your day trades on momentum stocks like QTT:
Greed is the reason why traders will often add at the wrong times. Everyone wants to have a big trade. But you have to have a proven system that will tell you when the right time to add to a position is. You have to control your greed to protect your gains. Recognize when you are adding to a position when there is a new, high probability setup. Do not just buy more shares because you want a bigger winner. Treat every add you make to an existing position like a new setup, as if you didn’t already have a position in the stock.
Join Our Next Bootcamp
We will teach all of the setups we use to trade IPOs and other momentum stocks in our 60-Day Trading Bootcamp. To get started, get your free trading assessment here.