Page 305 - THE MARKET WHISPERER

THE MARKET WHISPERER 30 1

In principle, you should try to predict the breakout and buy before it
actually occurs. To do that, you need to closely follow the stock’s behavior
in the seconds prior to breakout. Your trading platform should be providing
you with all the necessary data. You must follow the chart, the volume, and
the balance between buyers and sellers manifested in the BID and ASK, for
every single cent in which the stock is being traded beneath the breakout
point.

Where a price consolidates in the short range, you will see that
the balance between the bid and ask is identical, since the nature of
consolidation is that neither side is victorious in this “war.” However,
when the price approaches the breakout, you can see how the balance is
breached in favor of the buyers, and that the volume of trade begins to soar.
Once you see that the volume is increasing and that the sellers’ liquidity is
almost depleted, that is the point to click the button.
• Seller’s liquidity refers to the number of shares appearing in the ASK

dropping to zero.
Over time, as you gain experience, your success rate at predicting
breakout moments before they occur will improve.

What happens if you buy pre-breakout and the price does not
breakout? This does not mean the stock will not breakout later on. Most
stocks eventually do, and the only question is if you are able to cope with
the loss until it does. The solution is simple: before the breakout, buy only
half the total amount you had planned on, and at the breakout, buy the rest
if you can. When you estimate that the chance of the price breaking out is
not as good as it initially seemed, you can generally sell at a loss of just a
few cents.

Which order should you use when buying pre-breakout? When I buy
pre-breakout, I tend to use the LIMIT order, limited at most to the ASK
price. If I feel that the price is about to break out within seconds, I use the
LIMIT for up to 3 cents higher than breakout price. If you realize you have
clicked the buy button too late, the stock has passed your limit and you are
left with no merchandise, leave the limit order open another ten seconds
following the breakout. In many cases, the price pulls back slightly prior
to its continued trend up, making it possible for you to join the breakout.
Don’t leave the order open for too long, since you don’t want to get it filled
hours later if the stock returns to the breakout price after making a good
initial move.