Page 409 - THE MARKET WHISPERER

THE MARKET WHISPERER 40 5

a retest several cents above the entry point [2]. Imagine how you would
have felt had you not taken a partial! Around the retest area [2], I increased
my short position by 400 shares so that I was now short 600 shares. The
price dropped and I took a second partial with 300 of those shares [3]

just above the round number support line. I have now taken two partials
and am holding 300 shares in short. The price continues to trend down, to
90 cents below the entry point. The psychological calm I was afforded by

taking the first two partials gave me the focus needed to realize a full profit
for these remaining 300 shares.

• Rule 4: NEVER GIVE YOUR MONEY BACK TO THE MARKET!

Let us say you have taken a second partial with a stock in an uptrend.
The price is sufficiently far from the entry point and you are left with a
small quantity of shares which, with a bit of luck, may give you even greater
profit than the two partials. Now you need to raise your stop to the entry
price or slightly higher. In other words, don’t lose on the quantity you have
left.

Remember the rule we have repeated: never return your money to the
market! At the most, forego the profit and let the price slide back to the
entry point.

This is a golden rule that every trading newbie must constantly keep
in mind. If you are operating correctly, your entry point should also be the
point at which the original line of resistance breaks, and as we know, a
broken-out line of resistance now becomes a line of support.

When you raise your stop to the line of support, which is also the entry
point, you simply cannot lose. In fact, you are trading with the market’s
money and removing all risk from the quantity you are still holding.

• Rule 5: How to Manage the Balance

At this stage, when you are holding only a small percentage of the original
quantity of shares, you need to decide how to manage it. First, check what
the market is doing: is it supporting the direction of your trade? Even a
very strong stock can capitulate to a market that has changed direction. If
you feel there are clear signs of a market directional change, move your
stop closer. How is the stock behaving? Is it holding its trend? Is its sector
showing and holding a matching trend? Now you need to decide if you are
going to “sleep on the stock” or make do with the profit you have already