With my post nasal drip cough I tucked myself into my trading station ready to perform.  AST who sits to my left was interested in RHT. I didn’t have a stock(s) I needed to trade, so I traded his.  RHT on the Open was a lesson in how not to lose money.

1) RHT first moved higher after its gap up on the open.  60c was cleared for size.  Time went by.  62c was cleared.  Time went by.  65c for size.  It ticked towards 60c, time went by.  68c for size was cleared.  It ticked towards 65c, time went by.  70c got cleared, time went by, 72c got cleared, time went by.  RHT was trading higher but way too slowly.

So we had offers getting cleared that is bullish.  But we had a set up that offers too much risk right on the Open.  RHT had gapped up so there was danger of it dropping out on the Open.  Yes offers were getting cleared but they were not lifting quickly, after they were the stock was not exploding, RHT was not spreading out.  Yes I was still long but for small size, lightening up along the way playing defense.

To me the description above could have been the reverse accumulation set up.  With all that buying and not much of an upmove this breeds risk of a quick reversal.  And then we all saw 41c after 75c would not print much.

There were a few groans on our desk as RHT changed price.  But this was to be expected.  This is a pattern of risk.  This was not a long to load up in.  You needed to be light and flexible.  I took a small loss and moved on.

2) RHT traded in a range between 30c and 73c after the drop out above.  I play RHT from the long side and made the spread a few times.  I did not do so with size.   I said to an inquisitive trader on our audio call, “I am long but I am not that long.  I am not willing to take on much risk with this trade.”  I observed that this was a set up that was not one of my best plays.  It was a C trade.  So I was in the play, but more just to gather some information.

RHT dipped below 30c, and I hit the bids playing the break of the range.  It did not tank so I covered some immediately holding a small short position.  Again this was not a great set up for me, another C trade, so I was not willing to take on much risk.

3) Gold started getting chirped on the desk.  I started a small position in FCX, C trade.  Again small because this was not a trade that highlights my trading strengths.  I took a small loss in FCX and moved on.

4) RHT finally started to trend lower, but the subset for how it was trending was not a favorite trade of mine.  I was short.  I was short small.  I was holding.  But again I was not willing to take much risk in the trade.

How much we take home each month is the result of how much we make MINUS how much we lose.  Staying small in a trade that does not feel right to you is the skill of a long time trader.  Keep your risk minimal and your losses small until you find a play that offers an exceptional risk/reward to you.   Save you risk for your A trades.  Learn to minimize your risk on your C trades.

Best of luck with your trading! Don’t forget to follow us on Twitter.