Methods for Success: How Meme Stocks Grow

We have already found out that meme stocks are an attractive speculation tool for individual investors, they are bought in the hope of a quick return on investment with a solid profit. Basically, the surge of viral activity and excitement is supported by users of social networks Reddit, Twitter, and Facebook. They are the ones who force Wall Street hedgers with their actions to buy back large blocks of shares to prevent huge losses, which gives an additional boost to the further growth of the stock's price.

The meme community, while chasing high profits, prefers stocks with high but "short" open interest. According to WallStreetBets forum users, the behavior of meme stock quotes has a certain cyclicality. During the "first phase," the individual investor community identifies and identifies undervalued stocks, and bids begin to come in to buy that company's securities.

Then comes the "middle phase," during which more and more individual traders show interest in the company's shares. Prices begin to rise and get even higher. Thus, there is a smooth transition to the "late phase," during which the securities in question cause a great deal of excitement among users of social networks, which contributes to the further influx of quotations.

Individual investors, seeking easy profits, make significant investments. During this period, short sellers also join the process, as the prospects of this security are repeatedly reevaluated. And then, naturally, comes the "profit-taking phase", when the most sophisticated retail investors begin to gradually withdraw from long positions. These actions sometimes create a panic wave of sales for fear of losing accumulated profits. As the result after several weeks, there is a rapid collapse of the quotes, and securities of the corporation begin to trade in a sluggish sideways trend with low volumes till the next cycle takes place.
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