Why do people continue to invest their money in the riskiest parts of the market? stories of modest investments turning into multi-million dollar windfalls attracts thrill seekers and hungry investors like moths to a flame. However, chasing achievements like these is dangerous: for every story of someone who made it big, there are countless more about those who lost everything.
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Still, the potential for quick wealth and the challenge of beating the odds are hard for some investors to resist. GOBankingRates spoke with Thomas Pratter, CEO and Founder of automatic whalewho was in the right place at the right time to make big profits from meme stocks in 2021.
Meme Stock Mania
The meme stock frenzy was a once-in-a-generation phenomenon. Fueled by social media hype against short sellers, it showed the huge potential profits from this type of high-risk investment. In the case of GameStop, a collective buying frenzy propelled the stock to stratospheric heights, creating a unique opportunity for huge short-term gains if it could be timed right.
โI made $31,000 investing in GameStop and Dogecoin during the meme stock frenzy,โ Pratter said. โRecognizing the volatile nature of these assets, I strategically timed my trades, taking advantage of rapid price fluctuations. โGameStopโs unprecedented rise, fueled by the enthusiasm of retail investors, presented lucrative opportunities for short-term gains.โ
Pratter showed how you can seize a fortune in the midst of chaos, if you have the stomach and skills to trade it correctly.
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Risk management
But high risk requires advanced risk tactics. Unlike traditional long-term investments, you need to monitor these volatile stocks very closely so you can act quickly when things change.
"Riskier stocks should be monitored much more closely than safer long-term investments," said Justin Zacks, vice president of strategy at Moomoo Technologies Inc.. "Trade alerts and stop losses are great ways to manage such positions, especially around events like earnings."
The impulse cuts both ways. The same forces that drive stocks into the stratosphere can quickly reverse and cause brutal sell-offs.
"Stocks that rise parabolically, like a rocket, can just as easily crash," Zacks said. โWhen they turn, they can turn quickly. Much of this is due to investor psychology. โA stock can suddenly become a hot potato and investors look to sell it as quickly as possible.โ
The importance of perspective
When the market is trending up, it is easy to become overconfident. It may seem ridiculously easy to make quick money with risky investments, but you should always stay calm and remember to be careful.
"A rising market like the one we've seen since October 2023 can help mask trading errors," Zacks said. โTraders who excel in both bull and bear markets for many years can have more confidence in their abilities. Investors should be prepared for the possibility of losing most or all of their investment when trading risky stocks. Funds for these types of investments should not come from money needed for daily living and paying bills. Riskier investments can be a small part of a diversified portfolio.โ
Don't let the prospect of easy money lead you to develop sloppy trading habits or convince yourself that you've cracked a code that has no solution. Regardless of the potential rewards, high-risk investing should always be treated as highly speculative. You should always approach these investments assuming that you could lose everything.
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This article originally appeared on GOBankingRates.com: I made $31,000 investing in this cryptocurrency and high-risk stocks
