Business & Investment

Opinion: These 12 lessons from GameStop and AMC Frenzy can help you trade stocks and make money (or at least lose less)

Hear screams from investors who have made huge profits with GameStop
+ 19.20%

Or AMC Entertainment Holdings

You just see their profits evaporate for hours or days.

This coordinated Bull Raid was launched by thousands of retail investors on the popular website forum Reddit. I heard the story of fate. What we didn’t hear was from people in the middle, small retailers and investors who lost thousands of dollars (or more).

For those who still have GME or AMC, or who are aiming for the next volatile meme stock, we offer the following advice based on personal experience and observation. These are the lessons you need to know before entering the stock or options market (or if you own a winning stock or option).

1. Do not sell stocks or options of products you do not own. The traders who lost the most money at GameStop and AMC sold “naked” calls and puts (ie, sold options for stocks they didn’t own) or sold out stocks (again, of stocks). I was a trader (who sold stocks). They didn’t own it). When you use this very dangerous strategy, you can make a lot of money if you are right. If you are wrong, the loss can be immeasurable. In fact, some careless traders lost tens of thousands of dollars in thousands of dollars last week. Again, don’t sell anything naked unless you’re a professional. In this case, even the pros lost a lot on that dangerous bet.

2. We sell at “zero point”. The rule I created is: If the big profit disappears and is at the break-even point, sell it before the actual loss occurs. It is better to leave with zero than loss.

3. Don’t be a stubborn seller. Why is it so difficult for most traders to leave at zero? Stubborn. Many traders made big profits last week just to see their profits disappear. They refused to sell because they wanted to get their money back. If you hold the option, it will not happen. (If you buy at or near high prices, you will run out of money. If you own shares, plan to wait months or years for recovery. Stubborn shareholders often get “deadlocked” Become.

4. Take money and run. If you hold a stake or option position that makes a huge profit, you sell half or all of the stake you hold, but withdraw. I call this “extreme sales”. Sell ​​something when your profits exceed your maximum expectations. We all know the story of a gambler who won a big win at the casino, but he won’t leave the table until all his money is gone. Know when to leave your computer. Profit is momentary, especially when volatility spikes.

5.5. When you make a long shot transaction (that is, gambling), you make a small transaction. Both GameStop and AMC were big bets, but for a long time the deal went well. But what if you bet wrong? I talked to some of these traders. One lost $ 8,000 in a single option contract. If he had traded his regular size (30 contracts), he told me, his loss would have been over $ 240,000.

read: GameStop and AMC show why you need to practice trading before playing with real money

6. Don’t expect this trading frenzy to continue to happen: A group of Reddit forum traders may unite for more bear raids or bull raids. With the exception of Treasury Secretary Janet Yellen and Fed Chair Jerome Powell, it is likely that new rules have been created to prevent this from happening again. The Fed hates volatility and does everything in its power to calm the market. Again, when you make a lot of money in a transaction, get it as soon as possible. Because you may never have a chance again.

7. Stop bragging about how much money you have made: Many big-winning traders quickly boasted to social media (and jealous friends) about how much money they made in this deal. However, the euphoria they had was temporary. It usually disappears after all the money is gone.Clever (and polite) traders took their profits and kept themselves victorious

8. Use the time stop. Timestops are lesser known or less popular, but they are invaluable for fast-moving stocks (or when trading options). In a very fast market, many of these meme stock traders have found a difficult way to meet traditional stop limit orders. Instead, set a date or time to sell after making a huge profit. For example, you can sell your position by Friday (although selling in extreme cases is better, see Rule # 4).

9. Sell half or all of the positions. Knowing when to sell is never an easy decision. If you sell too early, it’s annoying to see your inventory increase. You lose money if you sell too late. Selling half of your holdings is a reasonable alternative, but if your position goes against you, you should be prepared to sell the other half.

10. Don’t seek revenge when you lose money on stocks. It is common for traders to seek revenge on stocks that have lost money. Don’t fall into this emotional trap. If you lose money on stocks, let it go and move on.

11. After making a big deal or losing a lot, trade small. If you are emotional about the stock, such as anger or revenge, trade for a small amount. Many of the big hits in the market have to make bigger and bigger bets. Like casino gamblers, they keep trading until they run out of all their money.

Don’t you think it can happen to you? Jesse Livermore, one of the greatest speculators in the world, earned $ 100 million in a week in 1929. Then he lost all his money within five years. He should have moved most of his profits out of the market after his big win and traded small for the next year. Instead, he became reckless and lost it all.

12. Don’t take too much risk. Don’t invest or trade so much money that you lose your home or 401 (k). The broker told me about clients who settled their retirement funds and used cash advances with their credit cards so that they could buy GameStop and AMC. Some have won and some have lost, but many have taken too much risk.

Memestock Pyramid Scheme

People who traded GameStop, AMC, and other meme stocks thought they were trading, but they were actually attending a huge meme stock. Those who entered early and exited early probably worked. Those who entered the country late or were too long lost money.

My advice: Check these 12 rules regularly. They are based on the experience and bad luck of thousands of other traders, including me, who we thought were smarter than the market. In fact, the market was smarter than us—because it’s always the case.

Michael Sinsele is the author of “Understanding Options,” “Understanding Equities,” and Upcoming “Making Money Trading Options.”

More: These trading strategies can make stock market trends your friends

plus: “Overconfidence”: Why most men under the age of 30 trade Bitcoin

Opinion: These 12 lessons from GameStop and AMC Frenzy can help you trade stocks and make money (or at least lose less) Opinion: These 12 lessons from GameStop and AMC Frenzy can help you trade stocks and make money (or at least lose less)

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