Page 309 - THE MARKET WHISPERER

THE MARKET WHISPERER 30 5

How Much to Buy? To Sell?

Every trader must operate within his or her limitations: the amount of

money in the account is one factor, and the other more important limitation

is his or her psychological ability to gain or lose money.

There are several more factors that dictate the correct mode of

operation, and which have nothing to do with your own limitations. The

minimum amount of a breakout purchase must be 400 shares, and the

maximum is generally thousands of shares and dependent on liquidity and

the amount of money in your account.
• Why the minimum of 400? The main reason that I like to use 400 shares

is because I prefer to take a partial of at least three-quarters of the
amount bought at breakout. An amount of 400 allows you to execute
a partial with a round figure of 300 shares. A smaller amount, such as
300, will not allow you to sell three-quarters which would be 225, and
a round figure of 200 is not three-quarters but only two-thirds.
• Another reason to use 400 shares is the dollar profit target: an amount
of 400 shares should contribute an average of $100 profit at breakout.
If you are day trading, you should not be satisfied with less than this.

SMART At breakout, realize three-quarters of the amount you
MONEY bought and put that money deep into your pocket.
Remember: we never return our profits to the market!

After closing out 300 shares, you need to continue managing the 100
shares that remain. I tend to realize three-quarters of the amount in the
first partial, since I am a firm believer of “putting that money in my pocket”
when I am shown to be right. I am also aware of the fact that holding the
remaining 100 shares is like a gamble without any apparent advantages,
since the real advantage was reaped at the breakout. The rest depends
on the trend and fate. Sometimes those remaining shares will allow me
to reach a greater profit than the partial, and sometimes they will drop
beneath the entry price and cause some minor damage. In any event, the
100 shares left after a partial of 300 are never meant to bring you to a loss.
Remember this fundamental important rule: We never return our profits
to the market!

What Happens When a Breakout Fails?

You’ve bought at the breakout. The price goes up several cents, and to your
sorrow, begins to drop. Why did the breakout fail?