Is Discord the next r / WallStreetBets? 5 actions that suggest this is the case
If you want to be a day trader, I don’t blame you. People who regularly earn multiple percentage points a day can get rich beyond imaginable. Crypto arbiter Sam Bankman-Fried recently became a minor celebrity after revealing he was a billionaire at the age of 29.
Typically, professional traders like Mr. Bankman-Fried exploit price spreads or use some form of statistical arbitrage. This is when investors take advantage of minor price discrepancies between different exchanges or assets.
But you don’t have to be a financial genius to turn $ 10,000 into $ 1 million. This is because business information can also come from sentiment analysis. It is a tool that commodity traders and market makers have successfully used for decades for a living. (Day traders who lose money are usually amateurs who just guess what the prices are going to do).
The same practice can apply to stocks, especially those that are illiquid or small cap. These inefficient assets are a treasure trove of pricing errors; any investor with a better understanding of sentiment will shop around.
And where is the best place to get information about feelings?
Reddit r / WallStreetBets was once a good place to start. The heavily moderated bulletin board, however, has lost some of that luster as regulatory oversight has intensified. Only a handful of trusted users can now speak freely without worrying about their messages being deleted.
Perhaps the best place today is Discord – the live chat and broadcast platform that remains largely hidden from the prying eyes of Wall Street (and the SEC).
In this great read, we’ll take a quick tour of Discord and what investors need to know to beat the market in this new game.
The big read: the apple of contention?
At first glance, Discord seems like an odd platform for stock bettors. In 2015, founder Jason Citron developed the service to connect gamers via voice (VoIP).
âIt’s almost like giving your friends a group hug or taking them to lunch,â Citron said of the platform. And quite a few people signed up for lunch. Five years after its launch, Discord has reached 140 million monthly active users, a rate that rivaled Facebook’s meteoric growth.
Its ease of use and screen sharing options have also made Discord a platform of choice for investors looking to share stock market advice.
Today, the platform hosts communities like Stock VIP, a 300,000-member forum run by a private company based in Delaware. Users can chat for free or register for premium services. Hundreds of other stock-based Discords vie for attention.
The effect was profound.
This week, actions in computer reseller New egg (NASDAQ:NEGG) grew 170% despite virtually zero mention of r / WallStreetBets.
âI just hit NEGG today because I was expecting a continuation of the gap,â wrote a poster on Discord r / Pennystocks. âHonestly, I think it’s just WSB getting into the idea of ââNEGG now,â another joked.
The platform has also made it easier for investors to pump penny stocks, whether by accident or not. Day traders with many subscribers can create herd effects when they share their trades on live feeds. Weakly traded stocks are particularly vulnerable to overcrowding.
MOMENTUM TRADING MAKES A RETURN
In 1997, the the Wall Street newspaper published an article on a new day-trader tool: AOL Chat Rooms. By coordinating with AOL’s real-time messaging services, investors could manipulate stock prices without resorting to old âboiler roomâ telephone tactics. Successful traders could earn thousands of dollars a day.
The saga would end with multiple market manipulation lawsuits with the SEC and a decades-long hiatus in retail investor day trading. But for a brief moment in the history of the stock market, all influential investors had to do was 1) buy a stock, 2) post what they had done online, and then 3) watch the stocks. prices go up as thousands of other traders piled up.
And then came Discord.
In the shadow of Reddit’s r / WallStreetBets, Discord channels have quietly become today’s equivalent of the AOL chat room. It’s an echo chamber where influential members can cause rushes for rising stocks, regardless of the underlying merits of the asset. If everyone’s doing it – and the price goes up – it must be a good buy, right?
This thinking means that dynamic trading has become dominant, especially in small cap stocks. Russell 2000 stocks that gained 50% or more of their value in May 2021, according to Thompson Reuters data, would add another 17.8% the following month. Meanwhile, those who lost 30% got back only 8.7% of their value.
In other words, the winners keep winning and the losers fall behind.
FIND THE NEXT MOONSHOT DISCORD
“Let’s play at the pump, I have 20 minutes until my next meeting,” wrote one Discord user this week. “Purchased 5.42 APRE.”
The same user would sell for $ 5.51 a few minutes later.
Many Discord day-trading pushups are short-lived. The platform’s scroll-based discussion system means old ideas are quickly replaced with new ones; what I write today will be out of date within 10 minutes of publication.
But there are a few clues as to what will make the next stock popular on Discord.
- Nostalgia. Many Discord users are gamers by the very nature of the platform’s history. Expect game companies like Corsair Gaming to do better than, say, a department store Dillard (NYSE:DDS).
- Momentum. Users are looking for quick wins, so technical breakout strategies like SMA-50 will work better than mid-return ones like RSI-14. (You can read more about using technical analysis on ineffective stocks here.)
- Liquidity. The finer the exchanges, the better the chances of a business ‘mooning’. Penny stocks and alt-cryptos are particularly susceptible to manipulation.
A CNBC One study found that hot stocks on r / WallStreetBets tended to last around nine days. Meanwhile, Discord actions such as Geographic group (NYSE:GEO) at Microvision (NASDAQ:MVIS) may see the jumps last a day or less. This is a fast paced business environment that often requires sales at market close.
FIVE STOCKS PROOF THAT DISCORD IS NEXT r / WallStreetBets
Newegg. I’ve mentioned NewEgg as a moving stock before, but it deserves a second special mention. The hardware retailer lands squarely in Discord’s favorite names list thanks to its long history of catering to hardcore gamers and its offbeat reputation. His willingness to reserve rare pieces, such as that of Nvidia (NASDAQ:NVDAThe RX3000 series graphics cards, aimed at top customers, are precisely why retail investors will love the stock, regardless of its value.
Marine software (NASDAQ:MRIN). The online advertising company is one of the most deleted r / WallStreetBets tickers on Reddit. Still, the unprofitable company has lived with the Discord talks for its incredible 1000% returns since late June. Its small market cap of $ 218 million also gives slender bulls a clue to keep pumping before a crash.
Exela Technologies (NASDAQ:XELA). No amount of strabismus can explain the massive increase in Exela’s trading volume. In the last seven trading days, more than 1.6 billion XELA shares have been traded, more than the previous year combined. Prices have already jumped 90% on the Discord Frenzy; further gains could be on the way if the imbalances between supply and demand worsen.
Carver Bancorp (NASDAQ:CARV). Shares of the seven-branch New York bank climbed 250% on Thursday despite Reddit’s r / WallStreetBets removed all mention of $ CARV from its forum. While Twitter (NYSE:TWTR) undoubtedly contributed to the rise in stocks, it was the chatter from Discord that helped stocks embark on a short squeeze.
American Leisure Holdings (OTCMKTS:AMLH). “AMLH hit a group of pumps,” wrote one Discord user as penny stock shares rose 45% to $ 0.0033. The Pink Sheets company hasn’t filed a report since 2014, but that hasn’t bothered those at Discord pushing for quick wins.
Note that none of these stocks have particularly strong long-term 100x prospects; they’re just what’s hot on Discord. And that is why it is so important to buy strength and sell as soon as the prices stop rising.
Final thoughts: the same thing, again
The late 1990s saw an exodus of people leaving their jobs to become day traders. Some would hit big, especially those who got in early. When everything goes up, it is difficult to lose money in swing trading.
When the tech bubble began to burst, only those with cohesive systems survived. These were commodity traders like John Arnold of Enron, who used the energy giant’s market position to predict natural gas prices. (Mr. Arnold would continue after the Enron collapse). Academic studies have consistently shown that traders with good past performance continue to earn good returns.
So when today’s meme stock frenzy eventually slows down, where will you be? If you are relying on guesswork – or hoping – to pick stocks, then an upheaval could reduce your earnings.
But those with consistent trading strategies have a better chance of stemming losses. Bonus points if you can explain Why your system is working. What if you had an arbitrage system like the Bitcoin “Kimchi” trade? So I’ll see you soon on the other side of the Millionaires Bridge.
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As of the publication date, Tom Yeung does not have (directly or indirectly) any position in any of the stocks mentioned in this article.
Tom Yeung, CFA, is a Registered Investment Advisor whose mission is to simplify the world of investing.