Last summer Tim Lento got caught on the wrong side of AMTD Digital (HKD). If you recall, the stock went from $12 to $2555 in a few short weeks.
In all my years of trading, I’ve never seen a Supernova like it.
Like many traders, Tim saw the price action and thought it would be a layup short. After all, HKD was not moving on fundamentals or any worthy news.
And like most pumps, the stock eventually cools off and dumps. However, I don’t know many traders who can hold a short on a stock moving in $100 increments.
The market can stay irrational longer than you can stay solvent.
And while the loss hurt Tim, it didn’t wipe him out.
He shared his expensive lesson at the 2022 Trader and Investor Summit last month, and I’d like to share it with you now.
Table of Contents
What Went Wrong
Style Drifting
Tim primarily trades one set up extremely well. He shorts Chinese pump and dumps. He’s made millions from trading the strategy and considers it his bread-and-butter play.
However, HKD was not a pump and dump. It didn’t spike off BS news…this was something different.
Tim admits he had no business in that trade because it wasn’t an A+ setup.
Many traders will get seduced when they hear about others making money utilizing a different strategy.
It’s natural to get FOMO.
And it takes discipline to fight it.
If you want to make consistent profits in the stock market, you’ve got to stick to what you know works.
That was Tim’s first mistake in the HKD trade.
Don’t Trade When You’re Mind Isn’t On The Markets
Tim was gearing up to go on a trip. He had a vacation and good times on his mind.
Tim had no business getting into HKD because he was distracted.
Many traders will come into the session distracted. Maybe they’ve got family and relationship issues, are planning an event, are tired, or even hungover.
Trading is already difficult. You’re at a major disadvantage if you’re not completely focused. If you’re not feeling good or are distracted, it’s better to take the day off than to lose money.
Tim Got Lazy
The market has a funny way of humbling traders.
Success can sometimes breed bad habits. For example, traders will stop journaling because they think they’ve figured it all out. Or because they’re profitable, they don’t have to do the small things that got them there.
Even elite athletes warm up, drill and practice. That’s how they stay sharp year-round. And while trading isn’t physically challenging, it’s a game of mental chess.
Making good decisions, staying focused, and discipline requires practice. And Tim started to get lazy and stopped doing the little things that helped him become a millionaire trader.
The market will kick your ass once you start to get lazy.
Tim’s Comeback
Many traders blame everything but themselves when things go wrong, but not Tim.
He knew what he did wrong. He got into the wrong trade, was distracted, and was lazy with his process.
Luckily, Tim saw it as an easy fix.
Here’s what he’s doing now:
Journaling and Recording All His Trades.
Tim uses a spreadsheet to record the ticker, dates, PnL, and thesis behind the trade. It keeps him disciplined because he knows that when he makes a trade, he has to put it into his spreadsheet.
In addition, he can clearly see what’s working and why.
Sticking To What Works
Tim is a master at shorting Chinese pump and dumps. He studies the underwriters and press releases like a detective. That’s his number #1 setup. And that’s what he will be focusing on…
Style drifting cost him an expensive lesson.
But if you can learn from Tim, it could save you a lot of heartache in the future.
Tim Lento is a regular in the Trading Challenge Chatroom, helping traders navigate their way through the markets.
If you’d like to discover the Millionaire Challenge and how 30 of my students have gone through the program to become millionaire traders, click here to learn more.
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