February 26, 2021 admin

Things we may learn from GameStop

The GME event started about a month ago and is still unfolding, some say it’s the retail traders’ payback time against the Wallstreet giants and hedge funds, and some observe the story as a lesson to all retail traders who have lost money in the stock’s move, either way, there are some things we should learn from the last price move, here are some points:

  1. Hedge funds and institutional traders don’t trade with emotions against retail traders or any other traders, they trade to win, when you mix emotion in trading like the thrill of winning or the disappointment of losing, you end up with a loss, the big players have nothing against a specific group of traders, so viewing this as payback time is a waste of time and unprofessional
  2. Trading is not gambling, not close. A trader has a well-thought strategy, one where she knows what are the odds of success and loss, what’s the biggest loss you may expect, and what should be the next position size with every new position open, there is no luck or gamble involved only knowledge and patience. The GME story emphasized the gambling part of trading, which is non-existent in professional trading, this is an undesirable side to the story as novice traders see the stock market as a casino instead of another source for investment growth, the view has to change to a more patient and calculated investment instead of the “here and now” type, all stock market research suggests that investing in the stock market can be profitable in the long run, an investor has to have the patience to let her winners run, what GME did is show that quick money can be made but the risk management side was completely forgotten
  3. It’s never one stock alone, it’s the entire investment strategy that matters, focusing all your efforts into one individual stock is a narrow view of the market, one must have a broader view of his entire, diversified, portfolio of assets, including commodities, currencies and more diversified assets to protect capital during downtimes.

To conclude, the news media likes the GME story because it sells, that does not mean you have to buy,

Trade smartly,

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