Example of a bad IPO play
Updated
I drew this up for a user who asked more detail about the IPO playing strategy I have discussed before. It's important to look at the worst case scenarios (rather than the best case) when evaluating ways of trading. The guidelines are simple to base a trading strategy around:
Risk management and trade management around these rules are up to the individual trader but those are guidelines that at least keep someone wanting to play an IPO out of trouble.
If a trader deviates from this plan they might get lucky, catch that falling knife, and be really happy at how "CLEVER" they were to get it at such a GREAT PRICE!
...But do that enough times and one time you'll become a bagholder.
Having a set SIGNAL and ENTRY keeps your trade DEFINED. It gives you something to base your risk and trade management. If you try to buy an IPO at an arbitrary price... where is your risk? Stock going to $0?
The key is for an IPO trader to avoid something like
LYFT which just never comes back. If you were to allocate capital to something like this it's easy for your capital to get destroyed because you really only have two hard price points of risk management:
Neither are optimal situations for trading.
Have a plan. Trade your plan.
- Wait for the high of IPO week
- Wait for the break
- Take a pullback to that level
Risk management and trade management around these rules are up to the individual trader but those are guidelines that at least keep someone wanting to play an IPO out of trouble.
If a trader deviates from this plan they might get lucky, catch that falling knife, and be really happy at how "CLEVER" they were to get it at such a GREAT PRICE!
...But do that enough times and one time you'll become a bagholder.
Having a set SIGNAL and ENTRY keeps your trade DEFINED. It gives you something to base your risk and trade management. If you try to buy an IPO at an arbitrary price... where is your risk? Stock going to $0?
The key is for an IPO trader to avoid something like
LYFT which just never comes back. If you were to allocate capital to something like this it's easy for your capital to get destroyed because you really only have two hard price points of risk management:- Your maximum pain
- Stock goes to $0
Neither are optimal situations for trading.
Have a plan. Trade your plan.
Note
Another user on my social media cited this example. No dip buyers are clever in ROOT 
"Be to others the person you needed to meet 10 years ago"
Discord Trading Community: discord.gg/eDfhKvS5AC
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Discord Trading Community: discord.gg/eDfhKvS5AC
Youtube: youtube.com/c/NoroksNotepad
Twitter: twitter.com/noroktrade
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