New generation uses a “Buy on Highs” and “Sell on Lows” strategy. Big one way price or a big one way fall over the past few years is due to “Buy on Highs” and “Sell on Lows” strategy followed by so called reditt traders or social media traders. I am not surprised by violent one way price moves anymore. In India there are millions of “whatsapp group”, “telegram group”, “facebook group”, Instagram and other social media which dictate the investment decision of everyone. Most of the social media groups are free. It is very easy to dictate the price of selected relatively unknown stocks and intraday trading of soft commodities (in Indian commodity exchanges). Some of these groups are involved in aggressive “spoofing trades”. I have seen some groups resorting to spoofing trades for a long time. They keep on changing their names and location but overall group members remain the same. In my view the impact of social media is more in stock and soft commodities in India and comparatively less in metals futures and energy futures.
I will give you an example of how social media impact trade. A social media group in telegram say “X” gives a buy call in MCX crude oil near term future at Rs.4000. These group has more than five thousand members. Twenty percent of the members of the group (which is one thousand members) go long in MCX crude oil at Rs.4015. So one thousand lots bids to buy are placed at Rs.4015 (assuming the lag time between giving of crude oil and actual execution). MCX crude oil price is very sensitive. Crude oil price rises in MCX. Those who exit at target one generally make a profit while those who wait for target2 may to may not make a profit. This is just an example. Reality will be slightly different but quite similar. This is happening in India in every investment avenue. This is happening every second in India during the trading hours.
Social media investing influence is not just in India, this is happening everywhere in the world. We get phone calls from people who made trading losses based on the advise of some of these groups. I am just trying to create an awareness that one needs to be very prudent while making investment decisions and trading decisions based on social media. One should always determine his risk appetite before trading in stock future and commodity future. For delivery based stock trades make sure that the listed stock has some positive fundamentals.
Gold is oversold. There should be a pullback rally in gold. Risk to return ratio is in favor of medium term gold investor and long term gold investor. Gold is a very good buy at current price for the medium term and long term. Short traders also use a buy on dips strategy with a stop loss below $1722 for end February.
I do not think there will be any impact of intervention by US treasury secretary Yellen on silver and gamesstop type trades. It will need a general legislation to stop gamesstop type of trades which in turn will not be acceptable to large hedge funds.
Traders have factored in a good US January nonfarm payrolls. A below expectation NFP can result in short covering in gold and renewed long positions in gold. Technically gold is still bearish.
COMEX GOLD APRIL 2021 – current price $1796.00
- Gold has to trade over $1766.00 till next week to rise to $1836.90 and $1882.60.
- Trend and momentum is down. But another wave of sell off will be there only if gold trades below $1766.00 to $1721.70 and $1699.80.