By Lyn Chan
SINGAPORE — In January this year, millions of armchair traders put the short squeeze — a classic Wall Street tactic — on hedge funds, bidding up a handful of stocks and roiling the market. GameStop was one of those shares.
Undergrad Kai En, 19, took part in the frenzy. Unlike many others caught up in the high of seeing the stock soar by as much as 1,700 per cent, he opted for a measured approach. And yes, he made money.
Here's his story:
“On January 24, I woke up to a stream of texts from friends who, like me, have been seeking to improve their financial literacy and grow their money through investing. ‘Bro, you won’t believe what happened last night!’ ‘Did you invest in GME?’
My curiosity was piqued. Apparently, a short squeeze had taken place with the GME, or GameStop, stock. From research and discussions, I found out what a short squeeze actually was and why it happened. The discovery fuelled my interest.
But, as much as I saw the overweight potential for profit, I was hesitant to put in my own money. The uncertainty of several factors, including the nature and the background of the Redditors, left little room for credible fundamental or technical analysis of the stock and kept me at bay, even though I consider myself a risk-inclined trader.
My friends did not have my reservations. I advised them to proceed with caution. I was extremely sceptical about their methodologies, which seemed to be based on the hope of getting lucky rather than concrete evaluation.
Eventually, I succumbed to the temptation after seeing many of them raking in profits.
With money that I had made from a recent trade, I first put in around US$2000 into Blackberry’s (BB) stock, which was another ‘meme stock’ being short squeezed at the time. I held my position for a few days, and closed it after bagging a gain of slightly more than US$1000. I was happy, although the price of BB continued to rise.
Similarly, I put in US$2000 into GME. The move earned me around the same amount of profit. Initially, a sense of regret consumed me, knowing that if I had put more money into the trade, I would have made a greater profit. But after my momentary ecstasy settled, I remembered that the amount I had decided to put into GME was one that I had carefully assessed to be ‘safe’ for my portfolio. Anything more than that would simply have been too much of a risk for me to handle had the trade gone haywire, even if it meant sacrificing the potential for more profit.
I did consider buying more GME stock subsequently. However, at that point, the price was falling too quickly, and I did not think it would rise again. I did want to open a short position on it, but no brokers I was using offered it.
My friends who traded GME had polarising experiences. One made a few thousand dollars by day trading the stock for two weeks. Another friend blew his entire savings. He didn’t tell me the exact amount, but it was between S$5,000 and S$10,000 that he used to buy GME share at over US$300 each. He is still holding the position now as he doesn’t want to close it at such a huge loss, and is hoping for another similar short squeeze to occur to help him minimise his losses, or even net a profit.
Upon reflection, I think that my small success in this endeavour was a result of luck more than anything else. I was fortunate to have won this coin flip of a trade.
If a similar opportunity arose, I would most probably do what I previously did: take a sceptical view, and not jump on the day trading bandwagon, or investing an amount of money I do not feel comfortable losing.
In trading, it is easy to get caught up in making bigger and bigger trades without realising that one is simply getting lucky. This sets the stage for large downswings, some of which can become tough to recover from. While there is always risk involved in every trade, I strongly advocate for traders to do their due diligence so as to understand what they are getting themselves into.
Otherwise, isn’t simply putting money into a position and praying for the best nothing more than mere gambling? Even if you fancy making a high-risk trade, there are many ways to protect yourself against unnecessary debt. For myself, I ensured that the sum of US$4,000 used for my BB and GME positions did not comprise an overwhelming portion of my total capital, and that I was not using any other features like leverage trading to heighten the risk I was already taking.
I first began trading when I was 17 or 18. When I started, I engaged in the day trading of US stocks. Before that, I had been spending considerable time on the technical analysis of stocks. It turned out that I enjoyed the mathematical and formulaic aspect of it.
I chose day trading because I did not have a very big capital to work with at the time, and I did not want to put what little money I had into a long-term investment that would grant me slow and small returns for the amount. Day trading offered an opportunity for a quicker, albeit riskier, profit. The high volume of stocks traded in the US market also meant that stocks saw greater price fluctuations, adding to the allure of day trading.
That said, the nature of day trading proved to be too rigorous for my schedule of growing commitments. I could not afford to stay up all night trading stocks, my eyes glued to the computer screen. This explains my transition from day to swing trading
Swing trading grants me the flexibility of time, allowing me to hold positions of varying durations, from a few days to a few weeks.
In the future, I hope to diversify more as a trader and an investor. Currently, I am only focusing on stocks. However, many other areas in the world of finance have started to interest me. One of them is cryptocurrency. I am currently studying that, and am looking to trade in it soon."