So you've found the IPO that you absolutely must own. The company excites you and you feel that the pricing reflects a discount. After all the research you have done, you know for sure that you want to be in line on IPO day to make sure you can get your hands on this new offering. While we hope it goes well for you and you catch the next Google (GOOG  ), generating huge gains for you, what will you do if things don't quite work out as you planned? What happens if the new IPO starts will a rapid decline? When should you give up on your dream investment?

This is a very tough question that we get all the time. The volatility of a new issue can cause even the steadiest of hands to want to fold. If you are excited about the prospects of a large gain, then surely there are others like you. Facebook (FB  ) was a great example of a good investment that started off horribly wrong. Losing over half of its value before making a permanent low, Facebook scared out even the wealthiest of investors. So how can we limit our risk on the unknown?

Well, for all you technical analysis players your really out of luck. If you use a chart to trade then IPO's are probably not the best fit for you. With no history one cannot determine any support or resistance areas. If you use any indicators or oscillators you will also be disappointed as there is no history for them to run their calculations.

In the early stages of a new issue, the only real defense you have is a great offense. Be disciplined here. There is nothing wrong with taking a shot on something you feel will be a good investment, but don't bet the farm. A small position size to start will help you weather any volatility in the early days. Once the stocks settles down then you certainly can add to the position from there. 

The takeaway for investing in IPO's (and all investing for that matter) is to start small until you have a good feel for the risk you are taking. Hopefully your small investment will grow into a large one, but just in case, now you have a plan.