On Oct. 16, 2013, I made an unhedged call to consider backing up the truck and buying Twitter shares upon its IPO — for a trade, though, not as an investment. After the stock begins trading in the open market, only skilled traders should consider entering a position. Now, I would like to describe the rationale for the call and also how to trade the stock after it hits the open market.

The trade

With this column being written before actual trading on the NYSE commences, let’s start by looking at an annotated planning chart. There are no trading prices in the chart, obviously, because Twitter TWTR was not trading when the planning chart was made.

Please click here for the annotated chart.

First and most important, consider entering stops in the stop zone shown in red on the chart. The stop zone is $25.73-$25.97. If the syndicate bid at $26 is broken, consider exiting promptly.

The chart shows two potential targets, a low target and a high one. The low target shown in yellow is at $35. The high target shown in green is at $50. For guidance in between the IPO price and the two targets, a good way to plan is to look at Fibonacci retracements. The chart shows, in yellow, Fibonacci retracement levels from the low target and in green from the high target. Also consider moving the stop to protect profits right under the second Fibonacci retracement level under the stock price.

Finally, pay special attention to the price action. Consider staying with the trade as long as it traces a pattern of higher lows and higher highs.

An almost-free lunch

In the world of investments, free lunches are rare…Read more at MarketWatch

 

 

FREE: SUBSCRIBE TO ‘GENERATE WEALTH’ NEWSLETTER