For trading in stocks, the analysis is very important. It lets you know the right time to enter and exit a trade. Without proper analysis, you may end up in the red more often than not. There are many bases of analysis like quantitative analysis, technical analysis, fundamental analysis. These are developed over many years and have helped traders time and again to reap profits in the market. The Oracle of Omaha – Warren Buffet himself is a great believer of fundamental analysis.
1. Quantitative Analysis – using statistical models to predict future movements.
2. Technical Analysis – making an educated guess about price movements by studying technical indicators and graphs.
3. Fundamental Analysis – evaluating the intrinsic(real) value from the facts available.
These days there has appeared another basis for stock investing and trading – the reddit analysis. There is no analysis per se. Well almost non-existent! There is a subreddit called WallStreetBets (r/WallStreetBets). The members in this group reach a collective decision to pump some stocks – buy them in large quantities and as such increase the price. Once these stocks get sufficient momentum people post the profits they got in these groups, this further encourages others to buy them. They specifically target those stocks against which Wall Street Banks and big Hedge Funds have shorted against with a practice known as SHORT SQUEEZE.
The prevailing thought-bubble in such forums is that hedge funds use their investor’s monies to bet against small companies who have already suffered badly from the pandemic. These redditors have pumped stocks like – Blackberry, AMC Entertainment and most notably GameStop.
So far, they have been able to push it further, but there may come a time when these stocks reach their local maximum i.e. a high point, and plateau. Though they seem to be rising, it would have to stop at some point. Those buying them at this high point may suffer losses as it may fall rather than rise and people at that point would have to sell them at a lower price than what they gave.