You Know You Like Me Youre Crazy Too Meme

March 14, 2022 Post a Comment

The COVID-19 pandemic triggered a bizarre number of new trends, ranging from toilet newspaper hoarding to the rise of what'south become known as "meme stocks." If you're a newer investor, you may be curious about what meme stocks are and whether they're worth investing in. We'll break down the meme stock craze for you and clue yous in on what you need to know when it comes to choosing whether to invest in or avert them.

Meme stocks refer to a type of stock that suddenly surges in value due to social media hype. Unlike traditional stocks, meme stocks don't rise in cost based on fundamentals, similar sales or earnings. In fact, sometimes they're actually shares of companies that are doing pretty poorly based on traditional standards.

Similar to stocks targeted by mean solar day traders, traders in meme stocks rely on volatility lone. Equally more and more than investors get in on the hype, they all purchase into the stock at the same time, collectively inflating its price. This tin can result in a substantial rising in a stock'due south value within a short flow of fourth dimension.

The downside is that meme stocks tend to fall equally quickly every bit they surge, making them very unpredictable and risky.

How are Meme Stocks Created?

Photo Courtesy: VioletaStoimenova/iStock

Social media platforms such as Reddit, YouTube, and Telegram are the lands where meme stocks are hyped upwards. Usually, a group or user with a large following selects a stock to target and and so spreads the news beyond the online earth, urging everyone to buy into the stock at the same fourth dimension. Many of the almost popular meme stocks (such as AMC and Gamestop) are targeted specifically because they have abnormally high levels of brusque involvement.

Short interest is generated when investors "brusque sell" shares of a item stock that they believe will go down in value. These shorted shares are usually borrowed from the investor's broker, with the plan beingness to buy them dorsum at a lower price once their value drops and proceed the turn a profit.

When meme stock investors target such a stock, they create what'due south known equally a "brusk squeeze." Basically, this means that they drive the price up instead of down, forcing brusk sellers to panic and purchase back their stocks, often at a college cost than intended. This generates more buying, which just raises the value of the stock even more.

Are Meme Stocks a Worthy Investment?

First of all, never inquire a stranger online this question. They'll most always respond with a resounding "yep!" whether it's in your all-time interest or not. This is because meme stocks rely on a massive amount of people to buy into the stock at once in order to enhance its value. The truth, however, is that meme stocks are merely worth investing in for very curt amounts of time and simply if you understand exactly what they are and how to trade them.

Much like day or swing trading, profiting from meme stocks greatly relies on your ability to read charts and pinpoint the right times to both purchase and sell. It as well requires being in touch enough with social media to judge when the stock volition ascension in value but allowed from the massive amounts of peer pressure you'll encounter to "purchase and agree."

Another important component is beingness able to tell whether a stock actually a adept company that'due south simply attracted interest among meme stock investors or whether information technology's driven purely by meme stock hype. If it falls into the 2nd category, then understand that it's far from a sound long-term investment and should exist approached with a very different strategy.

While some people do brand money from buying and selling in the short run, nearly everyone who holds a pure meme stock past a certain point is going to lose their gains when the stock's popularity fades and its price begins to correct.

Top Meme Stocks Right Now

Due to their very nature, meme stocks are constantly falling in and out of favor. In guild to find the meme stocks of the moment, it's not a bad idea to follow WallStreetBets on social media to see which stocks are getting the well-nigh mentions. Meme stocks also tend to exist pretty easy to spot, equally they're often in the "movers" or "almost agile" sections of many brokerage sites due to their loftier volume.

Some of the well-nigh pop meme stocks of the moment or recent past include:

ContextLogic (WISH)
AMC Entertainment (AMC)
GameStop (GME)
Blackberry (BB)
Nokia (NOK)

Advantages of Meme Stocks

Amongst the biggest advantages of meme stocks are that they can be quite profitable if you fully understand what they are and how to play them. Due to the massive amount of volume they generate, they tend to be a twenty-four hours trader'south dream and can make yous a lot of money in a short amount of time if y'all know how to identify when to purchase in and when to greenbacks out for a profit.

Additionally, meme stocks besides involve a great deal of hype, and then information technology tends to be pretty easy to figure out which ones are "trending" at the moment. Another, less fortunate reward for experienced traders is that meme stocks tend to attract a large number of inexperienced traders who don't fully understand what'southward going on.

Many less-experienced traders volition "agree" long after a meme stock's short interest has dissipated, due to goose egg more than the advice of others on social media. Sometimes the only thing more assisting than an actual short squeeze is millions of people who believe there's one coming, even if the facts say otherwise.

Disadvantages of Meme Stocks

While meme stocks tin can be keen for experienced traders, they tin exist disastrous for beginning traders who don't understand what they're getting into or why.

The boilerplate meme stock generates a huge amount of peer pressure level to "buy and hold." Usually, this advice is generated by more experienced investors looking to pull a pump and dump scheme. Information technology then trickles down to the less experienced masses, who parrot the communication to others and shame anyone who doesn't follow it.

If you do get into meme stock trading, have whatever advice you hear on social media with a grain of salt and trade solely based on chart patterns and indicators.

Key Identifiers of Meme Stocks

Meme stocks tend to share several key characteristics which should help you pinpoint them. Some of the near common include:

A big amount of hype on social media platforms such equally Reddit, TikTok, YouTube, Discord, and Telegram
Large curt interest. For this reason, some meme stocks are pretty terrible companies that would never have risen in value if not for the coordinated buying effort
A huge amount of volume
Large toll swings in both directions
A large amount of risk
Online promises of an impending brusque squeeze and the wealth information technology will generate (often by inexperienced investors who don't actually understand how a short squeeze works)
Large amounts of peer force per unit area to "purchase and hold"