In early 2021, in the midst of speculative stock market euphoria, a pair of day traders went viral on TikTok with a video explaining their winning strategy.
“I see a stock going up and I buy it. And I just watch it until it stops going up, and I sell it,” says the user known as Chad. “I do it over and over and it pays for our whole lifestyle.”
Yes, Chad had discovered momentum trading. And it seemed to work out well for him. Like the millions of people who took up day trading during the pandemic, Chad was riding a thrilling bull market that was bingeing on ultra cheap money from the Federal Reserve.
For newbies, it was hard to go wrong. Pick a stock, any stock, and watch it go up. Now, of course, the joyride is coming to an end almost as rapidly as it began.
What’s happening: To invoke a “Game of Thrones” metaphor: The market is crowded with summer babies, and winter is most definitely coming.
“Turns out investing is kinda difficult when the free money faucet is turned off,” wrote one user on the WallStreetBets Reddit page last week, alongside an apparent screengrab of a stock market data page showing a sea of red.
For traders who’ve only known the thrill of the bull market, 2022 has been a harsh pivot. On the WallStreetBets page — the epicenter of the 2021 meme stock mania — the mood is decidedly less party-like. The rally cries of “diamond hands” and “HODL” have been replaced by jokey memes about bottomless losses.
Wall Street isn’t feeling particularly cheery, either. On Friday, the S&P 500 dipped into bear market territory but evaded closing there by the skin of its teeth. The Dow, meanwhile, notched its eighth-straight weekly loss — its longest losing streak in nearly a century, my CNN Business colleague Matt Egan reports.
There are signs the downturn is putting the retail crowd off. Robinhood, the free-trading app that was instrumental in the amateur investor boom of the past two years, saw its monthly active users decline 10% to 15.9 million in the first quarter of this year.
Still, Wall Street learned the hard way during the GameStop run-up what can happen when you dismiss the power of the Robinhood crowd. And for those who downloaded the app seeking a bit of a thrill during a dark time, now is a great time to stick around, watch and learn.
“I think retail traders are here to stay,” Craig Erlam, a senior market analyst at Oanda, told me. “Never before has it been so easy to trade financial markets… Some will be put off, naturally, but I think there’ll be plenty who won’t. These are very interesting times in the markets, after all.”