October 18, 2006 at 12:53 pm | | Comments 0

5 IPO’s and How to Trade Them

Earlier this week in the Free Newsletter (sign up in the sidebar at we discussed trading IPO’s, but let’s go a little deeper.

IPO’s are making a comeback these days in the market. With the indexes climbing steadily higher, new issues are garnering attention as sexy trading vehicles once again. Back in the day, trading IPO’s was a wild ride which everyone wanted in on. The trading world was fully aware of what was due to begin trading on a given day, and you were sure to find some heavy action in those stocks once they opened and for the first few days of trading.

Times have changed, and so have the ways which IPO’s are being traded. It’s a given that today’s IPO’s are a far cry from those of 1999 and early 2000, so naturally that means they require different trading methods.

I’m a big proponent of monitoring the “personality” of stocks before I trade them. How else can you set your expectations for how a stock will move, where to place your stops, and how aggressively to trade them?

There are still some great moves out there taking place in IPO’s, but generally I’m finding the best moves are secondary rather than the primary (or initial) move.

The way we trade IPO’s at is to let them make their initial moves, settle down a bit, and get set up for a secondary move. I like to see IPO’s trade for a few days so that I can get a feel for how they’re moving and what kind of volume they have (what is the overall interest in this stock?) and then take them for a trade on a secondary move.

Many IPO’s will have some initial excitement and then begin to consolidate. Volume falls off and the stock moves horizontally, creating a base from which a secondary move can launch. The majority of the time these bases come in the form of a bull flag pattern, a cup and handle pattern or a bullish ascending triangle, and that makes it very clear what the pivot point should be for getting long. Let’s look at a few examples of IPO’s which fit the description.

CVLT CVLT (Click image for full size.)
RVBD RVBD (Click image for full size.)
HBI HBI (Click image for full size.)
DIVX DIVX (Click image for full size.)
BARE BARE (Click image for full size.)

There are a ton of ways to profit in the market, and swing trading IPO’s as they emerge from traditional chart patterns is one of them. We trade some of these at, and even if you’re on the free trial I’ll show you what I’m seeing in the charts and outline my trade parameters along the way. If they fail, my bail out will be close by thanks to the pattern, so it’s no big deal. And if they work, well it’s blue sky above and there’s no telling how far they might run!

Jeff White
President, The Stock Bandit, Inc.

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