![\"BABA\"](\"http:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2014\/09\/BABA.jpg\")
<\/p>\nBefore the Open our newest traders met at my desk to discuss the stocks to watch, including $BABA.\u00a0 When trading IPOs there are two important considerations:<\/p>\n
1) momentum<\/p>\n
2) technical levels<\/p>\n
Below yesterday low of 89.50 tipped the momentum down.\u00a0 Below 89.50 and BABA was at all-time lows, if you can say such a thing about an IPO trading 30 points above its IPO price.\u00a0 During our pre-open meeting I counseled to “lean short” until we find the next very clear support level.<\/p>\n
Well 88 in BABA became a clear support level.\u00a0 It could not trade below there.\u00a0 And bounced to 89.\u00a0 Was BABA headed back higher?\u00a0 Or was it just in a range of between 88-89 with the momentum bearish since it was below yesterday’s 89.50?\u00a0 I wasn’t sure.\u00a0 I didn’t know.\u00a0 But I was asking the right questions and going through the proper thinking.\u00a0 We call it being a pro trader.<\/p>\n
What happened next?<\/p>\n
$BABA pulled in way too far from 89, even below VWAP.\u00a0 For 88 to be the turning point from a weak Monday and Tuesday open, we would expect a shallow pull in.<\/p>\n
Next I wanted to watch the upmove from near 88, the next natural move higher in the stock.\u00a0 That move was weak, barely clearing 88.50.<\/p>\n
Now it was time for me to put my shorting pants on.\u00a0 If BABA rolled over and held below VWAP, I would initiate a short around 88.35ish.\u00a0 And then add below 88 and 87.90, to a position of Tier 3.\u00a0 This is exactly what happened.<\/p>\n
But below 88, I expected a washout.\u00a0 What did I see?\u00a0 Way too much buying on the bid causing less confidence in my short and a pattern that was now offering squeeze risk.\u00a0 I covered to Tier 2 when BABA did not drop quickly below 88 and sat in a Tier 2 short, since it was still below important levels.<\/p>\n
As BABA made new lows I added back to Tier 3 and scaled out into the downmoves.\u00a0 Every 50c I scaled out of some of my core Tier 2 position getting down to 3\/4 of Tier 1 at 87.<\/p>\n
Also, I was stopped out of a quarter of my remaining above 88 and held the rest into the close.<\/p>\n
Tomorrow I will watch the levels I learned from today, 87 and 88.\u00a0\u00a0 There will be more opportunity in BABA to come.<\/p>\n
I hope how I attacked BABA today might help your trading in IPOs.<\/p>\n
Trade well!<\/p>\n
<\/p>\n
“You can be better tomorrow than you are today!”<\/p>\n
Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook.<\/p>\n
He welcomes your trading questions at mbellafiore@smbcap.com.<\/p>\n
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