Page 421 - THE MARKET WHISPERER

THE MARKET WHISPERER 41 7

$36.49 per share, I would divide $5000 by that figure and buy the result,
137 shares. Now let’s say the price rose by 17 cents: how much have I
made… See the problem? I would be spending more time on math than on
market direction.

Now imagine yourselves trading in three different stocks simultaneously!
But if I round off to “batches” of 100 shares, it gets a lot easier to calculate
the effect of 17 cents profit: $17. I can assure you, it’s better to focus on
actual trading than to start reckoning complex monetary calculations.

Reason Number 2: Buy in Round Figures Based on 100

As we have already learned, executions of orders that are not round
figures of one hundred get delayed. The great majority of bid and ask
orders are set in round hundreds, known as “lots.” The ECN systems give
priority to round-lot orders. If I try to sell 137 shares, called an odd lot,
and at the same time a buyer wants 200 shares, the buyer may receive a
round 100 quantity from my stock. But it is highly probable the buyer will
not be interested in the additional 37 shares, which is not a round figure,
since it will be difficult for him to find another 63 to make up a round
number of 200.

A simpler solution for the buyer is simply to execute the trade with a
different seller who can provide the full round-figure quantity. Worse than
the above is the AON (all or nothing) order which buyers use, and which
translates simply into, “If I can’t have the entire quantity I’m looking for,
don’t buy anything.” This means that if I am holding 137 shares, that buyer
will not receive 100 from me. Instead, the system will look for round-figure
sellers.

Incidentally, AON is not an effective order for traders. Please avoid it.
So, to sell those 37 shares, I will need to wait for a buyer who specifically
wants that amount. This could take a long time, and may even end up
costing me an additional commission. The only instance where you might
consider using non-round quantities of shares is while you are learning to
use the swing method, where holding shares for several days makes you
less sensitive to sudden changes in price.

Reason Number 3: Stocks Move in Points, Not in Percentages

When a price rises or falls, the average buyer does not think in terms
of percentages but in price per share. For example: I want to buy a stock
at $20 per share. I waiver a little and the price goes up by two cents. I buy
at $20.02. Another example: I want to buy a stock selling at $2 per share. I