| SCOTT WELSH’S ANATOMY OF A GREAT TRADE
Trading The Freshest Of Apples (YETI IPO)
Everything has to start somewhere.
That includes huge winning trades.
And, as the old saying goes, if you want a good apple, don’t go to the barrel. Get it off the tree.
In other words, get it when it’s fresh.
That applies to stocks, too. And the “freshest” of opportunities come from the Land of IPOs.
IPOs are Initial Public Offerings and that’s simply when a stock first comes to market. One day there is no Apple stock to trade. The next day there is. After the IPO.
Once a stock comes to market, all sorts of emotions take over. Some think the new stock is the best thing ever. Others will say it’s the worst thing ever. (Plenty of people said Google and Facebook would never work).
For us, it’s hard to navigate all that emotional whipsawing.
So, instead, we can wait.
We can wait for the long-term simple moving average (SMA) to print on our chart, and then we can wait for two consecutive closes above that SMA.
Here’s a recent example on YETI in 2020.
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In October 2019, we first saw the 12-month SMA show up on our chart. In July 2020, we got two straight closes above.
From there, it went from $43 to $82 (after we exited on the first close below the SMA).
We missed some of the move but could’ve had a great trade.
Trading a fresh IPO would have paid off.
Happy trading,
— Scott Welsh
P.S. As a reminder, these historical lookbacks are based on my longer-term Weinstein Stage Analysis method. The charts above use monthly candles and a 12 month simple moving average. For details on this method, see my explanation on this Ask The Pros episode starting at timestamp 20:45.
Additionally, the teal lines on the chart show the profitable runs. | | | | |
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