Lessons learned from Tilray

A Tuesday Trade Edition: One of the most important concepts in trading is to review your work, and learn from the good and the bad. It’s critical to identify what’s working — to do more of it. Each week, you’ll get a trade from my trading journal, in which I explain my whole thought process from start to finish. Trading is all about finding something that works, and applying it, over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.

Hey Five Star Trader,

In the spirit of the “Tuesday Trade,” I wanted to switch it up and show you a losing trade. Though rehashing losing trades can be painful (trust me, I know!)…

It’s important for all traders to do this. 

By the end of your review, you should figure out what you did, write what you could’ve done better, and more importantly, how to not do it again. Hopefully, by sharing this with all of you, I can save you from making the same mistakes.

Let’s dive into my worst trade of 2021 — it all started with a little something called GameStop…

I’m sure most of you know what happened with GameStop (GME), but let me do a quick recap for those of you who are unaware…

A few weeks ago, GME had incredibly high short interest, and then all of a sudden a lot of buyers started coming in (mostly from Reddit), which pushed the price up. Meanwhile, as price continued to be pushed higher, short-sellers still had to get out.

This created never-before-seen market conditions and initially, I didn’t want to touch it because it seemed way too volatile. But as I saw price getting higher and higher, I started to feel some FOMO, wishing I had a piece of the action. However, by the time I considered getting into GME, I’d missed the move and it was already on its way down.

Five Star Fun Fact: FOMO is one of the most dangerous emotions in trading, and for a second I let my Trade Monster out of its box, which cost me big!

Now let’s fast forward to a company called Tilray (TLRY)…

Tilray (TLRY):

Not long after GME, another ticker, TLRY, caught my attention. TLRY is a marijuana stock, which is really hot right now because we’ve recently had a political change and the policies are more conducive for them. After I saw its high short interest, I knew I wanted to catch this move. But as we know now, this ended up being my worst trade in 2021. 

So what went wrong?

Breaking Down The Trade:

Before I got into TLRY, I noticed it was continuing to trade higher, almost day after day. Whenever there’s a gap up like that, that really goes against short sellers so that’s usually around the time they start covering. That’s when I decided to go long, at almost the dead high.

Normally, when I trade a short squeeze, that’s fine because when it’s going out on high volume, usually it’ll gap up. Instead, I saw my Trend Strength Turbo Candles showing me that there were a high amount of sellers pushing the price down. My best guess was the funds were determined for this not to be another GME experience. 

At the open, TLRY’s price dropped like a rock. Still slightly optimistic, I was hoping for a bounce off the open and held on for a few more hours. Unfortunately, it was too late. 

What Did I Learn From This?

  1. I took on too much risk…
    Normally, I don’t risk too much on a single trade. This is primarily because I trade in small accounts and in order to grow them, you can’t risk a lot on a single position. However, my FOMO from GME made me forget my golden rule: never risk more than you’re willing to lose.
  2. Be aware of market anomalies…
    I love looking for repeatable patterns that I can trade over and over again. But sometimes just because it happened once, doesn’t mean it’ll happen again. GameStop was one of those anomalies, and just because I saw it set up once, it was naive of me to think it’d automatically happen again.

Though hindsight is 20/20, I’m glad I took the time to review my trade and where it went wrong. It’ll help me in the future to not make the same mistake again, and I hope I can save you from doing the same. For a full breakdown, click HERE to watch my video.

Leave a comment for me below if you remember one of the worst trades you’ve ever had, but more importantly, let me know what you’re going to do in the future to avoid making that same mistake!

3 thoughts on “Lessons learned from Tilray”

  1. I made the same mistake. Although I bought deep in the money $25 calls for $11. The stock has been tumbling and this morning I did a calander spread and moved it to Apr expiry by paying an incremental $1.64. Now my break even would be a price around $32. Some good news on cannabis legislation may make it happen. I violated my own rule on position size.

    Reply
  2. Luckily I got into TLRY last year and my average cost was $5.86. I’ve been selling covered calls for a while so I guess I’ll hold on and hope (I know, ‘hope’ is not a strategy) it doesn’t go down too far.

    Reply
  3. I can honestly say I have never had a “worst” trade. Of course countless small ones, but not the “big” never should have lost that much one as of yet. I always have traded small, but often and many while growing the accounts. With over 10 years behind me I somehow have cut before I bled and kept my emotions in check while always running as fast as I could from the FOMO crazy ideas I had. If I don’t know the stock and it’s characteristics I just stay away. The outliers are the ones who will hurt you IMHO. Take the steady instead of the fast route.

    Reply

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