How to trade IPO?
Stock Prince (股票王子）
Stock Prince's Insights
Author: Stock Prince (股票王子） | Latest post: Mon, 22 Feb 2021, 8:17 AM
Why am I here? Recently I have witnessed many novice traders rushing into the market to simply buy penny/speculative stocks at very high prices. Causing them to lose their hard earned money or worst their life savings. This breaks my heart and as a very experienced investment bank trader, I believe that it is my duty to teach the public the right way to day trade.
1. What price should you enter?
If an IPO opens few hundred percent above its listing price, you need to be cautious as sellers will take this chance to sell it down to its “fair value” area. How do you determine fair value? As a rule of thumb, we use research from various banks to determine its fair price. For example, if the listing price of an IPO is 35c and various banks gave it a fair value of 40c, meaning anything significant above 40c is risky.
If an IPO opens too low, please also be cautious as lack of demand means that IPO subscribers might do panic sell to any willing buyers.
2. Can you take it?
Please bear in mind that trading IPO is not for the faint-hearted ! In my past 10 years journey, I saw IPO went from 30c all the way to RM1 within the day and also IPO opened at RM1.1 dropping all they way to 35c within the day. If you are unable to take huge risk, avoid trading IPO on its first day.
If you insist on rushing, READ ON !
Ipo has no support and resistance, no chart, no historical data, no VWAP so anything goes ! I personally like to use psychological support and resistance like 10c, 20c, 50c, 55c, 60c, RM1 and etc as there are no historical data to fall back on. Please be also prepared for the IPO rushing up and down 5-10 bids every minute with huge trading interest in morning session.
3. Do not even think of trading IPO if you do not have the time to be in front of your screen!
4. Never ever average down on IPO especially penny stocks.
With the lack of historical data, an IPO may plunge below its listing price. Case study: MTAG in September 2009 opened at its high of 70c and closed at 44c below its IPO price. Many traders and punters took severe losses as it was thrown all the way down.
5. Write down your trading plan and follow it strictly.
With such high risk in trading IPO, those who fail to follow their trading plan will end up wiping out a huge portion of their capital. So if you want to trade an IPO especially penny stocks, please do write down your plan and follow it strictly!
All information shared here are strictly for educational purpose only. There is no buy or sell recommendation for any counters mentioned in this channel. We hold no responsibility for your trades. You should make your informed decision by consulting your licensed remisier or investment advisor before making any investment decision.