In today’s AM Meeting I mentioned that AMZN has been unusually weak the past couple of days. If it got below 130.50 I thought there would be a lot of momentum longs who would panic and the stock would drop to 128.

That trade never materialized. The first move in AMZN was up. The second move in AMZN was up. The third move in AMZN was up. Are you starting to get the picture? Everything on the tape was indicating that AMZN would most likely return to 134.70 where it collapsed from last Thursday. And that is exactly what it did.

One of our traders decided to short AMZN. That is fine. Right on the Open it popped almost two points but could not hold a bid above 132.80. This was very close to 133 where AMZN failed yesterday and led to a two point down move. There was identifiable selling at 132.80 which presented a short opportunity with about 20 cents of risk with almost two points of downside to yesterday’s low.

But when AMZN quickly drove above 133 it was a cover. Our trader who was short decided not to cover but instead double down. Fast forward ten minutes later and instead of having a manageable loss the trader was down several thousand beyond his daily loss limit.

This trader will be on the demo tomorrow. Not primarily as punishment but instead an opportunity for him to practice executing proper trading techniques, which obviously includes hitting stocks that trade against you. By limiting the magnitude of your losses when you are wrong you preserve the opportunity to have a good week and a good month.