The Retail Revolution (Part 2) | Podcast Episode #485

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market. In today’s episode, we’re going to do Part 2 of the rise of the retail trader. Now we got through essentially like 2023 last week, and so now we want to pick up where that’s at and talk about the hype chasing in the trend rotation.

0:19
And the thing isn’t, and this is what you got to remember is that retail traders, they love a good story or a hot trend. They rotate into whatever is buzzing on social media, be electric vehicles, AI stocks, cannabis companies or the flavor of the month.

0:35
In 2021, meme stocks and specs was the theme. In 2023, it was the AI related stocks after chat GP TS success. And this often leads to a crowded trades where many retailers in investors rush into the same few tickers.

0:53
The results can be explosive short term moves followed by sharp reversals when the hype starts to fade. Now, stocks weren’t the only asset classes during this time that we’re booming from retail speculation. The retail trader mindset spilled over into cryptocurrency NFTS. Remember those things?

1:09
Those were like, I still don’t even understand what the NFT is to this day. But nonetheless, people were buying them and they were paying millions of dollars for them. And now they’re worth like pennies on the dollar. And they were doing meme coins as well in 2021, alongside of the meme stocks, there was an explosion of interest in the NFTS that stands for non fungible tokens.

1:27
I still, again, I still don’t know what these things really do, but essentially what the the Oxford dictionary, I guess would probably give it is a, is a is a digital collectible or an art on the blockchain. And so suddenly it wasn’t like stocks like GameStop just being hyped.

1:42
People were talking about crypto punks and board apes, the Yacht Club, NBA shot moments. I remember when I they first came out with NBA top shot moments, I thought they were actually selling you rights to like footage from the NBA like classical. I thought that was kind of cool like you would get royalties or something from it.

1:59
No, it’s like it’s nothing even close to that. It’s just like a like a picture. It’s APNG essentially. I know some people listening will take issue with that, but come on, tell me I’m not wrong. The NFT market’s growth it was astonishing.

2:15
In just the first four months of 2021, NFT trading volume exceeded like $2 billion, which was 10 times the volume of all. The 2020 NFTS went from obscure tech to mainstream buzz in a matter of months, with auctions going as high as $69 million for a single NFT.

2:35
Just like with meme stocks, many threw caution to the wind. They were buying digital assets for thousands or millions of dollars purely because they were going up in value. By late 2021, the NFT bubble showed signs of exhaustion and eventually trading volumes collapse, falling over 90% from its peak.

2:57
Then you have the meme coin craze. It was another extension of this crazy trend inspired by the original meme cryptocurrency dogecoin, which itself soared by thousands of percent in early 2021. Thanks to retail traders and Elon Musk’s tweets, newer and even more absurd meme coins absurd emerged, and we’re still seeing that to this day.

3:16
I mean, right now you still have fartcoin that’s just blowing the roof off of things. So by 2023 and 2024, coins like Cebu and Pepe Coin and others grabbed headlines for massive short term gains. And like I said, the pinnacle of this is probably what we’re living through right now in 2024, with meme coins like Fart Coin breaking into the top meme crypto currencies by market cap surging to over $1 billion in value.

3:43
The idea that there could even be something called Fart Coin and it could be worth over a billion dollars underscores the speculative excess that retail traders were willing to indulge in. And believe me, there were far worse names than Fart Coin out there. So whether it’s in stocks or crypto or digital art, the mindset was the same.

4:03
Jump on the hottest trade, ride the momentum, ignore traditional valuation and hope to sell before the crash. Essentially, you’re hoping that there’s another idiot that’s bigger than yourself. So then you have this retail versus institutional trader dynamic. And there’s a huge difference between the two.

4:20
And understanding how retail traders differ from institutional investors helps explain why many market dynamics we’re seeing today is happening. Why? Why it’s actually happening. And that is the decision making process. Retail traders often make decisions based on personal intuition, Internet research, tips from social media.

4:40
The process can be fast and loosely structured. A retail trader might buy a stock within minutes of seeing a tweet or TikTok about it. Yes, I said TikTok. People buy trades based off of what they see on TikTok. In contrast, institutional investors typically follow a more rigorous process with research teams and risk managers and investment committees.

5:01
This can make institutional decision making slower and more methodical, and sometimes missing fast moving opportunities that nimble retail traders are able to jump on. And then you have risk management, and this is a significant, significant difference. So you have institutions that have formal risk management protocols with position size limits, stop loss levels, and portfolio diversification rules.

5:23
A hedge fund manager must answer to clients if a trade goes wrong. Retail traders on the other hand, using their own money. I have the freedom to throw caution aside. And many do actually, I’d say most do. This explains why retail accounts sometimes experience dramatic blow UPS.

5:39
There’s often no one to tell an individual, hey, you’re over leveraged here until it’s too late. So retail traders typically operate on a shorter time frames. Many look for quick swing trades or even day trades. They might measure success in terms of daily or weekly gains. Institutional investors though, they’re often working on much longer horizons, quarters or years, especially in the case of mutual funds and pension funds and investing for the long term growth.

6:05
This difference in time horizon can create interesting market dynamics where both groups are active in the same securities.

6:25

Now, before I keep going, I want to make sure that you guys know about swingtradingthestockmarket.com. That is the service that goes alongside of this podcast and greatly supports this podcast.

6:41

If you’re able to join and you get all of my stock market research each and every day, be part of the Discord and get all my trade alerts and actions that I’m taking in the stock market on a daily basis, it’s really awesome. I encourage you to check it out. swingtradingthestockmarket.com.

7:00

So how did retail flows change the market? Well, the retail trading revolution has fundamentally altered the market structure and several important ways for one, high volatility and individual stocks. With swarms of retail traders able to mobilize quickly, individuals can see outsize moves more frequently.

7:24

Stocks that get popular on Reddit can gap up or down 2030% in a single day. Moves that used to be a rare outside chance of happening outside of earnings reports happens on the regular. Now you have casino like flows from retail, especially via options, have contributed to phenomena like gamma squeezes where market makers hedging retail option trades further propels the stock moves to to the upside.

7:46

And so you have these extended rallies and deeper corrections where retail momentum can sustain trends longer than many expect. When retail traders collectively believe a stock is going to the moon, they can keep bidding up beyond rational valuation. This led to the overextended rallies and stocks like Tesla, which soared roughly 10X from late 2019 late 2021.

8:07

On the flip side though, when the bubble pops, they can crash hard, as seen by many speculative stocks in 2022 dropping 70 to 80% or more. So sentiment is a driving force among retail. Perhaps the biggest structural shift is that the market sentiment indicators like social media trends or Google search trends have become critically important.

8:26

In the past. One could focus heavily on earnings, economic data, and institutional fund flows now. Ignoring retail sentiment can be a costly mistake. The market has become more of a popularity contest in the short term. Stocks that capture the public’s imagination can disconnect from fundamentals for extended periods of time.

8:43

So you have the retail trading revolution resurgence that follow the 2022 sell off. But retail traders have been proven remarkably resilient despite 2022. So in 23 and 24, the retail army was still a major market player and was ready to jump on the dips and chase new rallies.

9:10

For instance, in 24, stocks mounted a significant rally and retail investors poured to the upside on the chase. Data from Bank of America has noted that its private retail clients went on a record buying streak by early 2025. Bank of America’s private clients have been net buyers of equities for 21 consecutive weeks, the longest uninterrupted buying streak in their data going back to 2008.

9:25

This resurgence was evident in what some dubbed the April 2024 rally. Retail traders appeared eager to not miss another bull run, having seen stocks recover from past dips, and fear of missing out, like with FOMO, played a huge role. As the market gained in early 2024.

9:43

Those who had sat out on the sidelines in 2022 didn’t want to be left behind. So as a swing trader myself, I’ve had to adopt my trading approach to account for the new retail driven dynamics. And here’s some strategies for navigating this environment. First, always focus on the risk reward and a frothy market.

10:04

It’s easy to get swept up in the excitement of a hot stock, but risk management must still come first. Before entering any trade, define your risk, where you’ll cut your losses and your potential reward target. Ensure that the reward to risk ratio is favorable, aiming for $2.00 of upside at least for each $1.00 of downside risk.

10:21

This principle doesn’t change even if everyone on Reddit says the stock is a sure thing. As I often say, manage the risk and the profits will take care of themselves. And don’t trade a position size that you can’t manage your own emotions on, like going all in on a trade or yellowing your life savings on a particular stock.

10:41

Tip, You have to avoid chasing the parabolic moves. And so if a stock has already gone parabolic straight up on retail hype, resist the urge to jump in late. FOMO trading is a primary cause of losses. Often by the time you hear everyone talking about the stock, the easy money has been made.

10:58

Instead of buying high in a frenzy, either wait for a pullback to support or look for the next opportunity that hasn’t been discovered yet. Remember, there will be always another opportunity tomorrow. It’s better to miss a few rockets then to become a bag holder.

11:15

When the music stops. An emotionally charged markets technical analysis helps to clear up the picture and eliminate the noise and emotion of trading. Crowds tend to act at obvious technical levels, and they react to those support levels under those resistance levels, even if they don’t even realize it.

11:35

So keep an eye on volume patterns. A surge in volume can often confirm a retail fueled breakout, while a climax and volume might signal a blow off top. So don’t fight the trend, but know when it’s exhausted. When retail money is flowing strongly into the market, it can create powerful up trends and it usually pays to trade in the direction of those flows.

11:53

Fighting a retail driven rally by shorting too early can be painful. Trust me, I know all about this and plenty of seasoned short sellers learned this the hard way in 2020 and 2021 with the meme stocks. And trust me, I thought the meme stocks were crazy and way overvalued, but they went higher than even I expected.

12:11

So as a trader, as a swing trader, you can ride the trend but keep raising your stop losses to protect profits as prices start mooning. And don’t be afraid to take partial profits. And if you have conviction that a move is a bubble, it’s OK to step aside rather than short it too early.

12:31

Cash is a position too. In fact, instead of you shorting it too early, I’d probably say if it’s one of these meme stocks, don’t short it at all because you just don’t know what kind of crazy gaps that you might have to deal with on an overnight basis. Tune out the noise and stick to your plan because in the age of social media, one of the biggest challenges is constant noise.

12:47

You’ll hear hundreds of pinions daily on Reddit, Twitter, Discord. It can be overwhelming and leave the second guessing on your trades. While it’s good to become aware of retail sentiment, don’t let the crowd override your trading plan. If you enter the trade with the plan entry target, stop based on your analysis, stick to it.

13:09

Don’t suddenly sell out just because someone tweeted A bearish take, and don’t hold longer than plan because Orem users insist that the stock is going much higher. I often remind traders the market will always test your emotional control. Those who can keep emotions at Bay and execute their strategy systematically will outperform those swayed by every twist of crowd sentiment.

13:27

This rise of retail trader has undeniably shaped the stock market landscape. We’ve gone from a market dominated by institutions to 1 where the little guys collectively wield significant influence.

13:50

Their behavioral patterns add both liquidity and volatility to the market. We’ve seen them behave at times like a massive crowd of momentum chasers and at other times like stubborn contrarians who won’t sell despite the warning signs. So for swing traders and market participants, this new normal means that we must pay attention to market sentiment and retail flows as much as we do to earnings and economic data.

14:08

It means strategies must account for sudden retail driven moves both up and down. Importantly, it reinforces the age-old lessons about risk management. When irrational exuberance is in the air discipline trading is your anchor. The market can feel like a casino when everyone around you is gambling.

14:33

So if you’re an average trader, not a pro, know that you’re a part of a formidable collective group that can move mountains. But that cuts both ways. Trade smart, swing, trade with a plan, and don’t let the crowd dictate your fate. Don’t let them influence your trading decisions in this market, knowledge and discipline are the edge that you will set yourself apart with.

14:56

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15:12

I’d love to hear what you guys are struggling with from a trading standpoint. I’ll make a podcast episode out of it and check out swingtradingthestockmarket.com. Thank you guys. God bless. Thanks for listening to my podcast, Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the stock market each day with traders from around the world.

15:35

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15:57

You have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.