What I look for in a good IPO setup

Market action is dominated by 8 to 20% moves on 3 to 5 days timeframe. These are momentum burst or impulse kind moves where in a very short period of time stocks make a explosive move of few days. This same phenomenon also works on IPO.

To find opportunities like BOOT , I look for an IPO having a range expansion. The range expansion scan gives stocks that had bigger move than last few days of move. Along with range expansion I like to see a volume surge.

In ideal situation stock should close near high on breakout day. A stock that breaks out and say makes 1 dollar move on breakout day but intraday gave 50 cents of that move, is not something that I like to enter. If it pulls back say 25 cents after making high it is acceptable.

As you can see in BOOT prior to breakout day it was a negative day with stock down -.17%. I like to select stocks that had negative day prior to breakout day or a stock that is up less than 1%. I also avoid stocks that are up 3 days in a row prior to breakout. This ensures that the entry is at start of a swing move.

These kind of trades are typically of 8 to 40% magnitude and that move happens in 3 to 5 days time. To exit them I look for a price target of around 8 to 12%. If it is low priced stock then it can make even 20 to 40% move in 3 to 5 days as they tend to be more explosive. As far as possible I exit in t0 strength.

As we are entering the start of a momentum burst a tight stop can be used on these trades . If the trade violates the breakout day low the momentum is over and it is not worth holding it . So stop goes in at low of the entry day.

The market offers hundreds of such trading opportunities. Not every trade works like a charm like BOOT, but as long as half of them work and we keep losses small on one that do not work, it is ok. H

To find such trade daily on IPO you need to track IPO with less than one year trading history. Once you have that watchlist you can use a range expansion scan to find opportunities. If you set this up you can regularly generate your own trade candidates on your own.

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