Page 406 - THE MARKET WHISPERER

402 PART 11 - Risk Management

Why is it necessary to enter a limit order rather than simply wait for the
stock to pull back, and then click the button if and when it starts to trend
up again? The answer is simple: when a stock retests, it usually drops, then
shows rapid upward movement. Usually, you simply will not have a chance
to wait for the clear technical reversal in five-minute candles, nor even in
two-minute candles. The correct way to buy more and increase quantities
at the retest point is to set a limit at a low price. The limit waits for the
price to drop and will execute only when the preset conditions are fulfilled.

What is the correct price for adding shares? That depends on the
breakout point. For example: if I took a partial of 20 cents per share for a
stock that rose by 25 cents, I would be happy if the stock pulled back to just
five cents above the breakout. If I took a partial of 50 cents out of a high of
60 cents, I would be happy to buy more even at 15 cents above breakout. In
other words, I am willing buy more if the price pulls back by 70% to 80%
of its post-breakout movement.

As with the partial point, the point at which we buy more is also part of
the “art of trading.” Until you reach that level of capability, think in these
terms: “After realizing a profit of x cents per share, what is the highest price
at which I am willing to buy this stock again?” This is a simple business
management question which has nothing to do with stock trading.
• You sold “merchandise” for profit at a certain price. You are sorry you

did not have a greater quantity of that same merchandise at the original
price, and now someone is offering you the chance of buying at slightly
above your original purchase price.
• You already know that this is good merchandise since the stock broke
out and you booked a profit, and you believe that you are able to sell
more of this merchandise at a profit. You see that the price is now a
little higher, and do not wish to take too much risk by buying the same
amount that you bought the first time around.
• How much should you be willing to pay? How much should you be
willing to buy? Answer this question for yourself, and that is where you
will place your buy limit order for the additional quantity you wish to
buy.
• The quantity I buy at the retest will never endanger my profits from
the original partial. In other words, the maximum quantity I will buy is
about half of the quantity I already locked in with the partial.

Here’s how it works: I bought 1000 shares at the breakout, took a partial
by selling 800 shares, and was left with 200. Now I buy another 400 at the