Advanced Stock Market Trading - Level 2_11. Trading IPOs_ day trading and swing trading

Lesson 11: Trading IPOs. Day trading and swing trading

Today we are going to discuss Day Trading and Swing Trading of IPOs or initial
public offerings. The trading of IPOs occurs when a privately-held company opens
its shares of trade and makes them available to the public for trading on public
markets like the NYSE or Nasdaq. In doing this, the company is hoping to raise
money or capital, the company can offer secondary opportunities of shares in the
future. All of this should be common knowledge by now. However, how do you make
money on those IPO’s and swing trading is best reviewed here.

Day Trading IPOs

The largest stock market winners usually make their key money amount moves
within a limited number of months or years of their initial public offering (IPO).
Therefore, it compensates to identify and track companies early – before, or as they
go public.

Before buying IPOs, traders should know that recently listed shares have their own
set of risks and opportunities that must be contemplated.

The IPO Money amount

The IPO money amount is the official money amount that the investment bank
underwriting the deal will use to sell to the large institutional investors for the primary
trade of the stock. Regular people can also purchase at the IPO amount under
special circumstances. For example, if you have a stock trading account at the same
bank that is underwriting the IPO. For example, Morgan Stanley was the lead
underwriter of the Facebook IPO in its 2012 debut. They allowed some of their
clients to purchase at the $38 per share opening trade. Unfortunately, some of those
investors lost funds as the stock hollowed sharply in the months following the IPO.

Analyzing the IPO

It’s difficult trading upon established companies with thorough backgrounds, but
trying to trade on IPOs is even harder, especially when you are dealing with new
companies with virtually no history. Two points to interest to look for is how the
management team will use the funds collected from the IPO and what is the quality
of the underwriters.

Many operating managers will look at the performance of smaller companies and
follow their business plans to generate similar revenue. The IPO can have many
sources of data that acts at decoys, so paying close attention to the management
teams in the past years is one way to accurate data on the company.

Successful companies will be supported by larger brokerage firms who can endorse
well. Smaller firms may be willing because they will underwrite anyone.

Post-market

Once the IPO stock has begun its trading, it can be bought or sold like any other
stock. In fact, the liquidity is so high on the first day of and IPOs trading, it is

frequently easier to buy the stock. For example, during Facebook's IPO in 2012 more
than 80 million shares were bought and sold in the first 30 seconds through
high-speed computer trading. Any investor or trader with access to a stockbroker or
trading account could purchase shares on the open market for the rest of the day.

Stock Pop

The big enticement of an IPO is that it will have a key pop on its first day of trading.
In 2011, the shares of LinkedIn climbed 109% from $45 to $94.25 on the first day.
IPO investors hope to achieve these massive gains on the first day of trading as the
public market genuinely confirms the company's value. During the Internet surge of
the late 1990’s, huge IPO increases occurred frequently.

Flipping IPOs

Some people are on the bench about the practice of flipping. Depending on where
you end up will determine whether this will be a practice you use or not. Flipping is
the system of reselling a hot IPO stock in the first few days to earn a fast profit. This
isn't as easy to do as it sounds, and you probably will be strongly discouraged by
your brokerage. The logic behind this is that companies want long-term investors
who hold their stock, not speculative traders. There are no laws that inhibit flipping,
but your broker may preclude you from potential offerings. Of course, established
investors flip stocks repeatedly and as part of their routine business. Being aware of
this double standard will be helpful later on. Because of flipping, it's a good rule not
to buy shares of an IPO if you don't get in on the initial offering. Many IPOs that have
big gains on the first day tend to come back to earth as the institutional investors
take their profits.

Swing Trading

Swing Trading is a short-term trading method that can be used
when trading stocks and options. Whereas Day Trading positions last less than one
day, Swing Trading positions typically last two to six days, but may last as long as
two weeks.

Traders look at bearish and boarish patterns over a period of a few days. This period
of time can be very stressful as prices vary, so it is important to leave emotions
aside; traders are hoping to find the long half W sign with them buying as low as
possible then over a period of a few days and a slip back, it soars high having done
some trading algorithm, technical analysis and fundamental analysis.

For swing traders, identifying the entry and exit of a trade is the primary challenge for
all their strategies. Fortunately, swing traders don’t require perfect timing—to buy at
the precise bottom and sell at the precise top of price fluctuations —to make a profit.
Small consistent profits that encompass a strict money management system can
multiple earnings over time.

Risks in swing trading are equal with market theory in general. Risk of loss in swing
trading typically rises in a trading range, or sideways price movement, as compared
to a bear market or bull market which is obviously going in a specific direction.