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The Future Of Meme Stocks And How You Can Profit

Should You Always Buy The Dip?
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IIt’s hard to underestimate the significance of the GameStop short squeeze that took place in 2021. This was the first time in many years that one stock received so much attention and took the world by storm.

The GameStop short squeeze was truly unprecedented. The idea that a group of retail traders, organized by social media, could help move the price of a stock from under $20 a share to over $350 a share, in just a few weeks, is a riveting story.


It’s a tale that will be talked about for years to come and it highlights the impact that retail investors really can have on the market. Plus, the Gamestop short squeeze is only one example of meme trading that we have seen over the last few years.

 


Why Experts Think Meme Trading Will End

Despite this, some experts argue the impact from retail traders is becoming less and less. They believe that meme trading will eventually disappear from markets. And they do have a point.


The stock market has dropped over 20% this year with some meme stocks dropping more than 90%. Higher interest rates are destroying liquidity and causing valuations to crash across the board.

Furthermore, some retail traders have left the market completely. Others have returned to their jobs following the pandemic and have less time to play stocks. As a result, big short squeezes are becoming less common.

Why The Experts Are Wrong

However, although such events are becoming less frequent, they are still happening. We believe meme trading is going to continue. And here are four reasons why: 

1. It’s not just retail traders anymore!

 Just two months ago, we saw an insane short squeeze in Bed Bath and Beyond (BBBY). The stock moved from under $5 a share to over $28 a share in less than two weeks. 

 



It may not have been quite as impressive as the GME squeeze but it was still monumental in the scheme of things. And this move highlights something important. Because it wasn’t just retail traders who caused BBBY to go up so quickly. Hedge funds, wealthy individuals and insiders all played a part. This brings up a crucial point which is that it’s not just retail traders trading meme stocks anymore.

Hedge funds are now following Reddit forums like WallStreetBets. Institutions are using sentiment data to track meme stocks. There are even ETFs that buy and sell stocks based on trader sentiment.

Basically, almost everyone has an eye on meme stocks now. That will only exacerbate the intensity of this market.
 

2. The scale of the victory will last for some time

It’s hard to make the case that all retail investors made money in the GameStop short squeeze.

But, as a whole, you can argue that retail traders pulled off a stunning victory. Some of them made life changing amounts of money and many hedge funds were put out of business.

Whatever way you look at it, this was a big win for retail traders as a group. Books, articles and films will continue to be made about this for a long time.

Because of this notoriety, meme trading will stick in the memory for years to come.

 

3. The economic system continues to punish retail traders

The third reason why meme trading will continue is because, fundamentally, the economic system hasn’t changed. The whole meme trading movement began because investors were fed up with not having an opportunity to improve their fortunes.

Right now, hedge funds, wealthy individuals and corporations are still the ones yielding power.

Financial markets continue to reward the market makers and price gougers rather than the average man on the street. Higher interest rates might be dampening activity right now but meme traders are not going to go back to their old ways anytime soon.

 

4. Social media has a long way to go

Finally, meme trading is here to stay because the underpinnings that make meme trading possible are only going to advance. Social platforms will come and go but social media in general is here to stay.

In fact, social media will likely become more decentralized meaning that groups will become more tightly connected. And that could allow for more orchestrated market moves.

 

How You Can profit

In conclusion, meme trading might change but it’s not going to go away. Therefore it’s time to consider how you might profit. And our stance on this is pretty simple.

The best way to profit from meme stocks is to create trading strategies that allow you to make calculated trades free of emotion.

You must first acknowledge that meme trading is here to stay and embrace the communities and platforms where they exist. Currently, these exist on platforms like Reddit, Discord and Twitter.

The next most vital step is to build simple trading strategies using the most powerful tool we have:
data.

Right now, there are many good data sources available that cover meme stocks, retail trading activity or investor sentiment. One good example is the
retail trading activity database from Nasdaq which is affordable and clean.

In fact, we used this data in our course
Meme Stock Trading Strategies and were able to come up with some very interesting trading ideas.

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