Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.
Reddit and the forum WallStreetBets have become the go-to research tool of 2021. If you’re looking to tap into information that has a proven ability to dramatically move market prices, then Reddit is currently your first destination.
As detailed here, Reddit, Robin Hood and GameStop became the key buzzwords of the financial markets in January 2021. But how did an internet community platform, an online broker and a struggling US retail outlet become the central points in a financial markets war, which spilled over into the global mainstream media. How can traders take advantage of the new dynamic?
During the market frenzy, the broker, Robin Hood and the stock, GameStop (Nasdaq:GME), both played traditional roles. Since the South Sea bubble of 1720, stockbrokers and investors have, from time-to-time, combined to take buying and selling to extremes and create frenzied markets.
The difference this time was the role played by Reddit, the news aggregation website. Reddit relies on content posted by members being voted on by other users. This way, topics rise up and down the rankings and a member who consistently posts valued material develops a following. That is just what happened to the forum WallStreetBets.
Chat between WallStreetBets users drove GameStop stock up in price by more than 700%. At the same time, WallStreetBets pages discussing the markets have now been visited more than 1 billion times.
Market regulators, established financial giants, and small independent investors are all now keenly watching to see how Reddit influences the markets. One thing that is without doubt is that the events surrounding WSB are a game-changer.
The claim by the establishment is that members of the room co-ordinated to ramp up the price of GameStop and thereby inflicted pain on institutional investors (hedge funds) who were short the stock. This is rebuffed by Reddit users who point to the right to freely share information and that the big players have been doing the same for years.
We’ve compiled a list of the Reddit traders who helped break the mould and currently offer the best insight into the markets, and tips on the next big thing.
This subreddit is a good place to start because its top rule is ‘civility’. Searching through Reddit rooms will soon open your eyes to colourful language and strongly held opinions. If you want more light than heat, then this group focuses on open discussions on all subjects related to trading on stocks, options, futures, currencies and commodities.
House rules are:
1: Civility – Otherwise you’ll “find yourself on the receiving end of the ban hammer”.
2: Quality – No off-topic comments, memes or spam.
3: Politics – No politics.
4: Promotion or Spam – This is not the place to promote your business.
Many will find rule four particularly appealing. Too many online sites are cluttered by members looking to take from, rather than give to the group.
One feature that offers immediate insight into the mood of the markets is the Nightly Discussion board. This allows members to vote on what way they think the market is heading in the next trading session and gauge the sentiment of the forum’s other members.
If r/thewallstreet offers a gentle introduction to Reddit trading chat rooms, then r/wallstreetbets fast-tracks you to the white-heat end of the online market discussion spectrum.
It is, however, worth holding your nose, and not taking anything too seriously. Members share their trading pain as much as they boast about profits, but the dynamic appears to work. This is the site after all that is credited with sending GameStop stock into a +700% price surge.
Wallstreetbets has been up and running since 2012, but in January 2021, it saw its membership increase by more than 1 million in just one day. Traders around the world have headed to it to catch the inside line on major events.
Wallstreetbets is definitely sailing close to the wind, it even feels it necessary to state that “WSB moderators have not been asked to participate in any governmental investigation”. (Source: r/wallstreetbets)
The tone of r/Daytrading sits somewhere in between Thewallstreet and WallStreetBets. Daytrading covers multiple asset groups but has an emphasis on very short-term trading strategies.
House rules are:
Daytrading is a great place to develop a successful trading mentality. A lot of the topics centre on learning through experience. There is also a lot of camaraderie and mentor-like contributions from other experienced traders.
The page has been operating for more than 12 years and has matured into a forum that strikes the right balance for many day traders.
RobinHood focuses on stock trading and, more specifically, stock trading using the Robin Hood online brokerage platform.
House Rules are:
Rules 1, 2, 5 and 6 takes some of the chaff out of the chatroom. It’s not a place for sharing dramatic, irrelevant trading results or off-topic issues.
Dogecoin describes itself as “The most amazing place on reddit!” (Source: Dogecoin). That might be a case of over-selling, but it is an informative forum for those looking to share, discuss and buy the new innovative cryptocurrency dogecoins.
No-one can say with certainty if dogecoins are ‘the new’ bitcoin, ethereum or litecoin. What the page does demonstrate is that Reddit is a place to find out information about new trends.
A lot of Reddit members have made profits by being an early adopter and getting in at the bottom of a market.
Dogecoin is a specialist page, but if you want to find out how to buy dogecoin, or in fact, anything else at all about dogecoin it’s a good place to start.
As the title of the group suggests, pennystocks focuses on stocks of small companies. The members are looking for future potential and trying to get in early — have you spotted a theme yet?
New members can’t post straight away, in fact, they have to wait one month before being able to contribute. This keeps the information flow relatively stable and removes the potential for being overrun by erratic posts.
Memes are for weekends only. The fact that they are banned during the working week keeps the boards clear so that members can glean the information they require. If you’re looking for trading ideas relating to obscure, and not so obscure small-cap companies, this is the group for you.
Reddit may have reached a wider audience thanks to the events surrounding short-term speculating in GameStop, but it also supports groups which consider long-term investment ideas.
r/investing has been operating since 2008 and developed a significant following. It covers a wide range of markets with discussions covering topics ranging from ETFs to fundamental analysis of buy-and-hold stock picks.
There are a lot of interesting posts where traders share a detailed breakdown of the history of a trade. These offer the writer a chance to self-reflect, but also help beginners gain an understanding of how different traders work the markets.
The destination page for Reddit users interested in all things crypto. The forum has a global membership and addresses trading issues relating to crypto in different geographical regions.
All cryptos are covered, not just the big ones. There are interesting features relating to the behind-the-scenes development of the different coins, including updates on new tech roll-outs and system upgrades.
There are a lot of rules. The page even has its own pop-out page with each of the 10 rules being discussed in much detail.
This might appear heavy-handed, but crypto chat rooms are notorious for becoming cluttered with enthusiastic, rather than insightful posts. The moderators at CryptoCurrency do a good job of keeping the boards clear but do allow enough personal input to be posted to keep interest levels up.
This group covers a diverse range of topics. From the future of banking to crypto trading strategies and tax software. It’s a blend of analysis and commentary.
There are still enough stock tips to satisfy the needs of those looking to find a trading idea. Posts cover a wide range of instruments including equities, options, forex and futures. Comment is based on market events, such as analyst upgrades or deep dives into technical and fundamental analysis.
Options played an important role in the WSB GameStop situation with a lot of the price rise being put down to WSB members being able to buy cheap out of the money Call Options.
It follows that options and options trading could become more mainstream. The Options page on Reddit is a great source of information.
Entry-level basics are covered, but there is also a chance to go into granular detail on advanced strategies. The page’s blurb states it’s a place to “Talk About: Options Fundamentals — The Greeks — Strategies — Current Plays and Ideas — Q&A”. (Source: r/Options)
The fact that the page has 663k members (at time of writing) demonstrates that options could be a growth market and this is the place to keep an eye on developments.
Reddit is a good way to develop your understanding of any topic. It has also increasingly become a forum for traders to use to develop a shared approach. The degree to which this co-ordination breaks any rules and regulations may be a grey area, but the colossal impact on some markets is plain to see.
Some of the more direct stock tips need to be approached with caution. There is obviously a temptation for individuals to use the site to pump up the prices of names they have a position in. Basing trading activity solely on Reddit tips is therefore not recommended.
Traders do, however, need to know what way direction is heading. The numbers of members in some rooms are remarkable. The greater the membership, the greater the need to know what the mood of the room.
It’s been suggested that investment institutions have developed programs to monitor and disseminate the Reddit discussions. Given the ability of the rooms to move prices, this would be unsurprising and wise.
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