Page 412 - THE MARKET WHISPERER

408 PART 11 - Risk Management

What are the chances of the trend continuing? High: but is there any
risk? Of course there is. As I said above, the price can open with a gap
down below the stop and wipe out all the profits accrued from the swing!
Is the chance of continued uptrend greater than the probability of a drop?
Absolutely. The stock is in an uptrend, and the smallest item of negative
news can topple everything. But if you manage the situation in this way,
out of 100 opportunities you will take home extra income 70% of the time.
It not only pays, but it is correct to take strong stocks for the swing.

Notes: Every trader, every trading method, every market period,
whether moving sideways or volatile, has a different money management
mode. My trading method may not necessarily suit other traders, but
every trader must develop a method that suits him or her. There is no
single “correct” or “incorrect” method, but there does need to be a method
of some kind. Traders who operate only on “gut instinct” rather than an
organized method rarely see anything good come of their efforts in the
long term. They are the people from whom I earn my living. You can, and
should, use the rules in this book as your infrastructure for developing
rules that suit your psychological and financial abilities. Occasionally you
may also need to alter those rules to suit your own development or market
conditions. In a market moving sideways, you should take a partial of less
than 20 cents. In a strong market you should be able to take a partial of half
the quantity and not three-quarters, and hold at least one-quarter over to
the next day.

Some months ago, I experienced an extraordinary event. I lost for over
three consecutive trading days! With my self-confidence now in the dirt,
on the fourth day I was forced to change tactics. The solution best suited
to me was to trade in much smaller quantities, with much closer partials.
Some days later my successes once again became more regular, my self-
confidence was boosted, and I resumed my original money management
methods.