Trading IPO Breakouts: The Factors Needed For The Perfect Storm

We don’t see these types of trades often, but when we do, they’re easily our biggest account builders of the month. We traded a biotech stock called ANAB. Lately there has been a lot of buzz in the biotech sector. This indicates that the sectors are currently being rotated and a lot of investors are piling into low float biotechs.  ANAB has an 11 million share float so even though its priced at $50, we can consider it a low float stock.

Massive Gains Trading ANAB

We took ANAB right as it broke over the first candle for an opening range play. I entered for a long right at $54 and was selling off my last shares at $59. Even if you missed the first entry the stock was flagging all day. We reloaded on the trade and once it ripped over $60, it didn’t look back as it ran up to $72. Where I made my mistake was getting out of my position around mid-morning at the $62 area. But this was one of those moments where it was probably healthy to stick around a little bit longer. The momentum kept piling in so you can see flag pattern after flag pattern, followed by a daylong consolidation. If you were watching, you would have seen a lot of different opportunities to make money on ANAB.

Consistency is Key

Trading rules and discipline are always the same. First you’re looking for the opening range breakout and then entering a quick flag pattern. Follow the stock along its EMA hitting the dips and other setups that you see. That’s the simple way to go after these types of momentum stocks. Opening range breakouts and flags are really powerful patterns. Just trading 100 or 200 shares of ANAB back and forth can give you a great return if you have the right rules and discipline in place. When you have this type of range, you have the ability to make big account building days.

Perfect Storm for IPO Breakout

Account builders are really important when you have a small account. That’s how you can double your small account. Keep an eye on these types of stocks, especially in this type of market.

Here are the key factors for trading an IPO breakout:

  1. IPO stock
    • IPO stocks are usually hot within the first year of its offering. People are talking about them, focused on them, and trading them. When the company has not only buzz but real money pouring in, certain IPO stocks can explode.
  2. PR or earnings report
    • Timing these huge moves are hard, but not when you have your ears to the ground. When a stock comes out with sudden PR news or blow out earnings results, you can anticipate these movers much easier.
  3. Hot sector
    • Keep a pulse on what sectors are hot and which are fizzling. Maintaining a watchlist of sister stocks in the same industry often indicates where investors are rotating their money into.
  4. Low Float
    • Low float stocks are the prime characteristics for momentum stocks. The fewer the number of shares available to trade, the harder the price will push when the momentum flows in. As traders, large price ranges are essentially our life line.
  5. High relative volume
    • Relative volume is proof that momentum is piling in. New money buying up the stock and pushing the price higher means a multitude of opportunities for the modern day trader.

If you’re not sure of the setups and price patterns that we’re talking about you can learn them all here at our Bulls Bootcamp. It’s an intensive 60 day course to teach you exactly how I trade and why. To learn more or signup, email me at today!