It began when GameStop's fandom discovered that institutions were manipulating the chain's stocks by selling more shorts with leverage than equities were available. They planned to retaliate by raising the stock price.
Some of the merchants involved made millions of dollars in profit; before to this, the average cost of GameStop stock was $20, and it rose to $450. One of the institutions implicated in market manipulation had to be bailed out to the tune of several billion dollars.
Although we feel that the institutions were incorrect in their manipulation, we are concerned about the lack of a response strategy. One of our basic concepts at Investment Mastery is to not let emotions into online investment courses ; many a trader has experienced significant losses because they were governed by their heart rather than their intellect. It would be fascinating to learn who became engaged...
...what their plan was?
Was the goal always to feel validated in their cause, or was it to gain money? This appears to be a Ponzi scam to us. Many individuals were persuaded to join through internet forums like Reddit, and we're sure those who encouraged others had already invested.
The more individuals that come in, the higher the price and the greater the profit.
Many people feel that the key to trading and investing knows when to enter and when to exit. Looking at the GameStop chart, we can see people pouring in and driving up the price, but we can't seem to find a clear exit option.
It has gapped own since the surge, and the stock has plunged to roughly $60, which we think will go considerably lower. With the stocks price falling, individuals who bought at a high risk losing a lot of money. Someone will profit from this, and it is the individuals who are causing the price to fall. Once again, it is the institutions that are manipulating the stock and driving down the price. This manipulation has driven many to liquidate their long bets at ridiculous rates.
This suggests that there was no exit strategy or any strategy at all. When entering the market, there are five factors to consider:
Let’s apply this to the Game Stop scenario…
How to Get In - Before purchasing stocks, carefully investigate the company's fundamentals. With the worldwide pandemic, GameStop's foundations as a non-essential store are poor. This is a short sale, which is utilised to increase market liquidity. This also inhibits the euphoria seen in the GameStop chart.
What was the entry price - The entry price was $20, but the data indicates that people were still purchasing when it reached $450. Looking at the firm's fundamentals and prior pricing, the company was not worth this, so why did people keep buying when it reached this outrageous price?
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When to exit - To guarantee that you are in charge, set a stop-loss to ensure that you incur the least amount of loss and danger. There does not appear to be a point at which individuals were able to escape.
How much money to invest - Because our guideline is that you should never risk more than 1% of your portfolio, it would be fascinating to know how much individuals invested and what percentage of their portfolio they risked in this.
We believe it is too early to tell what will occur, but the ramifications might include less selling short in the market, which would be a mistake. It is not selling short that causes the price to fall; it is just selling. Folks who bought around the $20 level and then sold out, yeah, institutions bought and sold short, but many people just left.
It would be great to hear from those who earned money from this and whether or not they had a strategy. Looking at the chart and the discussions on forums, it appears that many individuals joined to be a part of the movement, but trading with emotions at its heart is risky a dangerous game.
This is not what we propose; instead, we always rely on our techniques and have a clear strategy in place for how to invest, including the guideline of never risking more than 1% of your whole portfolio.