Page 408 - THE MARKET WHISPERER

404 PART 11 - Risk Management

shares. The price goes back up and you take a second partial at $30.30
with 300 shares. You are now left with 300. Result: you have taken two
partials and still hold a larger quantity than after the first partial. You use
these shares to try to capture a bigger gain without any real risk.

Why is the second partial taken below the first peak? Sometimes, when
a stock is strong, you may succeed in selling above the peak, but the fear is
that the price will encounter resistance at the same level as the previous
peak and then reverse. Taking a partial before the new peak will reduce
your risk. Occasionally, when the stock is particularly strong, I keep my
finger on the mouse and try to let it reach a higher high before taking the
second partial. These are usually the “big winners” for that day’s trading.

Over time you will learn which stocks are strong enough to let you buy
more a third time, but generally the more a price trends up, the weaker its
new breakouts will be. Buying additional amounts gets trickier, therefore
the target for a third buy needs to be closer and the quantity smaller.

The opposite of a breakout is a breakdown. For breakdowns, the rules
are identical, as we will see in the example below.
Short and Retest Adder with Illumina Inc., ILMN

I shorted Illumina below $42.30 [1] for 1000 shares, and took a partial
with 800 when the price dropped towards the round number support
level of $42. I was left with 200 shares. Next, the price rose and executed