Page 336 - THE MARKET WHISPERER

332 PART 10 - Winning Trades

small a yield, so they will try to drag the trade out for a few more cents, and
usually discover that they have waited too long before selling. The stock
pulls back down by 10 cents, so it does not pay to sell because the profit is
even less now, and they wait a bit longer. Then the stock returns to their
entry point, or even below it, and the scalping ends in a loss!

With large quantities of shares, by contrast, a decent profit is earned
with each partial trade locked in, without the need to cope with the small-
money syndrome.

Note: the terms “small money” and “decent profits” are relative and
will differ from one trader to another, depending on each one’s monetary
backup and psychological makeup relative to profits or losses.

The One Cent Scalp

Cent scalping is a trading method geared at making profits of one or just
a few cents, from light intraday fluctuations in stocks with “locked prices.”
Stocks with locked prices are stocks in which hundreds if not thousands
of traders are operating, executing bids and asks at one cent above or
below the stock’s traded price. This is not a classic trading method based
on noticeable intraday fluctuations resulting from breakouts, breakdowns,
or direction changes. In contrast with everything we have learned so
far, scalping for one cent is based chiefly on lack of volatility. I wish to
emphasize that this is not my area of specialization, or even a method I
like too much, but in certain market conditions detailed in the next section,
it can be applied successfully.

One Cent Scalping and the Commission Barrier
The first condition for participating in this method is to have a large
trading account. If you want to profit from the movement of one cent and
still overcome the barrier of commission, you need to operate with no less
than 10,000 shares. A profit of one cent on 10,000 shares is worth $100,
from which commission must still be deducted. The commissions with this
method are the key to success or failure.

Here is an example: let us say that you profited one cent on 10,000
shares, producing $100. Let’s assume that you pay a commission of one
cent per share, and you bought 10,000 shares. That totals $100 profit,
cancelled out by the commission, and when you sell, that costs another
$100. Altogether, a loss of $100. Even if you paid commission of one-tenth
of a cent, totaling $20 for both buy and sell executions, you have still left
20% of your profit with the broker.