Page 420 - THE MARKET WHISPERER

416 PART 11 - Risk Management

When you ask traders what sums they trade in, they will find it hard
to answer, since they operate in quantities and not in sums of money. A
novice trader will start off trading in quantities of 100 shares per trade,
and over a year of accruing experience will gradually increase towards the
1000 shares per trade mark. Old hands at trading with several years of
experience up their sleeves buy stock by the thousands of shares per trade,

and in even more advanced stages, may even reach single trades involving

tens of thousands of shares.
I realize it sounds a bit odd to you: a trader may buy 1000 shares at

$20 each, for a total of $20,000 and then on another occasion, without
even blinking, he may buy 1000 shares at $50, operating with a figure of
$50,000.

And that is how it really works.

Here are three main reasons for referring to trades in these terms:

Reason Number 1: Fast Calculation of Profit or Loss
Traders who tend to buy 1000 shares per trade can easily calculate

their profit or loss: for example, if the stock you bought goes up 23 cents,
you have profited $230 (23 cents x 1000 shares); if it rose by $2 you have
profited $2000. This is not a calculation of yield on capital, but profit in
dollars per trade.

If you were to ask the owner of a shoe store what his monthly yield is,
you would likely be given a “what on earth…??” look. Ask what the earnings
per month are: that can be answered instantly.

SMART You never count your money when you’re sittin’ at the table.
MONEY There’ll be time enough for countin’ when the dealing’s done
-Kenny Rogers: “The Gambler” lyrics

When you are completely focused on a stock’s breakout, analyzing the

stock and its market direction, the number of bids and asks, its sector

status, volume and so on, the last thing you need to be doing is figuring

yield in percentages and multiplying by the amount of money in order to
calculate profit or loss. This is where the points system comes to your aid:
profit or loss of ten cents on 1000 shares will always be $100,regardless of
the price of the share.

One of the mistakes I made in my early trading days was buying a
quantity of shares according to a sum of money. For example, I would
decide to allocate $5000 per stock. This is what I did: if I chose stock at