A Not-So-Brief Review on r/WallStreetBets VS Hedge Funds

(To make my sleepless nights worth it)

Hoomans/Apes like us tend have the intuitions to be greedy, irrational and risk adversed. I will start off with a brief intro into Behavioral Finance(BF), then I will list off some emotional and cognitive biases that retail investors are notorious for exhibiting, and summarise with some technical analysis then wrap it up with some fundamental point of views.

Hopefully, by the end of this sharing, you will become a little bit more self-aware of what you are doing and have an idea that buying GME is not just for profiting but supporting the social movements such as “go fuck yourself hedge funds”, “Anti-market manipulating”, “TOTHEMOOON” and etc.

“One small step for GME, One giant leap for Apes”

Well, tbh it is such a blessing for me to encounter/witness this WalllStreetBets thing with my only 9-months-old trading experience (me as an impulsive stocks degenerate) as it will happen only once in a decade. Even though I was a little late to the party, I did get in with everything I could, and regardless of the outcome I have enjoyed myself and have learned more in the last two weeks than during any previous stretch.

Psychological Aspect:

So what is Behavioral Finance (BF)？

To put it in simplest terms, BF attempts to understand and explain observed investor and market behaviors.You are all familiar with traditional, neo-classical finance where it assumes investors are risk-averse (lol), maximize utility (level of satisfaction received from the consumption of goods and services), and the markets are efficient in every single way. BF essentially says that’s all bullshit because in reality, people are seldom rational and cannot possibly consider all available information when making a decision, therefore, the markets are not efficient at the point when it is being manipulated. For example, Robinhood port. Just wanna list down all the possible biases that you will encounter when trading.

Emotional Bias

1. Loss Aversion Bias: People tend to strongly prefer avoiding losses as opposed to gains. This will cause people to hold on to failing securities. This is a big one on this sub. I was legit chickened out when GME dropped drastically because of that arsehole RobinBitch trying to prohibit the buying volume. The r/WSB comrades including me have been the victim of Short Ladder attacks, internal disinformation campaigns, external disinformation campaigns, market manipulation, and straight up suppression. But, you should recognize the cut loss point when you’re in a bad play and don’t be afraid to get out. Moral of the story, we MUST set a cut loss point, no matter what movement you are participating. (I’m regretted to say that I was the paper hand in this great mighty event)
2. Overconfidence Bias: Unwarranted faith in their own intuitive reasoning, judgement, and cognitive ability. This is a big one and is shown every time someone yolo their life savings on far OTM options.
3. Self-Control Bias: Failure to act in pursuit of their long-term goals due to a lack of self-discipline. This is anyone in GME gang that paper handed(me) and sold at open without realizing that the long term play is to bank on this company turning around starting in 20Q4 and triggering a short squeeze.
4. Status Quo Bias: Doing nothing instead of making a change. This is the safest but you will never learn a thing from the market. Example are those that never closed their TSLA puts (HAHA).
5. Regret-Aversion Bias: Avoid making decisions that will result in action out of fear that decision will turn out poorly. Stop being a pussy noob. (I’m the pussy noob damn)

initial buying price at $256 and sold at $330. (I can basically cover my 4yrs college fees at that point)

BUT… OH WELLS :’)

Cognitive Errors

1. Cognitive Dissonance: Mental discomfort that occurs when new information conflicts with previously held beliefs. This is shown when people only notice information that confirm existing biases and ignore conflicting points of view.
2. Conservation Bias: People maintain prior views by inadequately incorporating new information. Will often result in being too slow to update their viewpoints and end up bag holding major losses. A good example are those that diamond handed SPY (SPDR S&P 500 ETF TRUST) puts in March.
3. Confirmation Bias: People only look for and notice what confirms their own beliefs and ignore those that contradict. An example can be virtually any “gang” that existed in WSB history. Tanker gang, silver gang, etc.
4. Representativeness Bias: People classify new information based on past experience and not realize that just because something happened in the past does not mean it is repeating itself right now. An example can be anytime someone compares the March crash to 2008 or 1929.
5. Anchoring Bias: Use of a psychological heuristic that influences the way people estimate probabilities. This is every time someone says stocks are at an ATH, why should I buy? Without looking at the fundamentals that drove the stock there to begin with.
6. Mental Accounting Bias: Treating one sum of money differently to another equal sum. Money is money, get over it.
7. Framing Bias: Answering a question differently based on way it is asked.
8. Availability Bias: People take a heuristic approach to estimating the probability of an outcome based on how easily outcome comes to mind. Every time stocks dip 5–7% I guarantee you there will be posts saying the crash is here simply because people can easily remember March. (BUY THE DIPPPP)

Hence, before making a decision, ask yourself if any of these biases apply to you. If so, you are probably not thinking straight and acting like a total retard (just like me). All of these biases can be countered by having a clear head, understand your risk tolerance and return objectives, and having a clear long term state.

Technical Aspect:

For those of you who are unfamiliar with what traders call “technical analysis”, it’s really just a fancy set of words to say looking at squiggly lines, bars, etc. on charts to try to figure out what’s going on.

One particularly popular tool is called a fibonacci retracement. It sounds a lot fancier than it is, but it is extremely useful, and extremely commonly used by momentum traders (which is partly why it’s useful — if everyone is trading off of the same thing, it’s a self-reinforcing bias in the market).

To be a better trader and even investor, it tends to be useful even on longer timeframe charts. Kind of uncanny really. Looking at this chart I realize I probably should have plotted the ‘retail line of defense’ here too. Oh well, maybe next time.

Takeaways:

1. I figured the relevant trading range going forward was peak euphoria to peak despair in regular trading on relatively good volume. That happened to be the top to bottom move on the Robin Hood news.
2. Using that for the fibonacci retracement, you can see how much of the trading action bounces around between the various levels before settling in scarily accurately into the 50% — 61.8% channel in after hours trading.
3. It’s quite possible that short-term equilibrium on this battleground stock is $300 to $350 until either side makes a strong push. Price was trapped in that range toward the end of normal trading on relatively good volume.
4. Probably a bunch of momentum traders drew (aka paper hands, eg. me) exactly this retracement (or something very similar) for their rest of day trading after the floor got put in near the retail line of defense. In all honesty it’s hard to say if the tool works because of some fundamental reason or because everyone uses it so everyone times their momentum plays off the same playbook, making it self-reinforcing. All that matters in the end is that it works pretty consistently once you get used to working with it.
5. Below the price graph, pay attention to the volume bars below. It’s especially critical when trading momentum to understand the relationship between share volume and price, as there are patterns that are more likely to play out depending on the relationship. For example, when price is moving around a lot, is it doing so on high volume or not much volume?
6. Traders tend to overshoot a little on each push, so even if price ultimately drops lower after an upside spike, if the volume on that drop is low compared to the upward push, that actually tells you that it’s likely to go higher a little later on. There are many sites that go more in depth into this kind of thing (patterns, volume and price analysis, etc.), and it is incredibly useful to try to understand what to take away from price and volume movement as you watch it unfold live.

Lots more going on here, but this post is getting pretty long already.

Other Takeaways:

• The whales in the pond obviously do their homework (that’s how they got to be that big, after all), and they were therefore prepared to act decisively to unload 17 million shares at the upper end of the trading range when Melvin got blown up. That’s how you make big bank on big volume — do your homework.
• Ironically, it might very well have been the continued unwinding of Melvin’s short position that intercepted the panic drop into premarket rather than a long-side heavy hitter. LOL.
• Thursday afternoon and Friday were low volume, low-conviction momentum sloshing around. Dueling HFT algos and momentum traders trying to scalp alpha from each other is my guess.
• Contract expiration may cause a price dislocation into the new trading week, so I’m not sure the fibonacci retracement chart is still useful.
• I’m sure if I go back over my previous trades and compare to the chart data more carefully I’ll find all kinds of other inconsistencies with my realtime thoughts. It’s key when trading, at least in my opinion, that you are willing, able, and indeed eager to go back and rethink your assumptions, no matter how much you liked them. Challenge and verify with data whenever possible. Not doing that is how Melvin got blown up, after all. *insert clown face*

Buy at $400 and sold at $290 after a Ladder Shock Attack

• My worst case scenario may still be valid depending on the total amount of short interest loading up into GME at these newer highs. I remember reading some news about fund manager shorting GME at the $400 as a stabilization mechanism. Wow.. short something with the most hyper volatility of any $1billion+ stock I’ve ever heard of… for stability. That’s not a word I’d ever associate with a WSB meme momentum rollercoaster stock. *💎 ✋ 🚀*
• An infinity squeeze is still totally on the table, as long as sufficient short interest remains. The strategy and tactics you’d use to get there may have to be different though, as price ratchets up into higher bands. I’ll keep those thoughts to myself — for sure those WSB guys have a plan. They’ve proven to be scary effective so far after all.

Overview

A few things going on here

1. The big volume days are when it seems to me that the greatest retail momentum would have occurred. The battles were pretty intense at key price points if you take a closer look at those intra-day charts.
2. Many if not most of the retail share volume was acquired at or below $148 on huge volume, that means the core of your retail support, and the majority of shares in WSB diamond hands would have been bought probably between the $30 and $148 price range. My guess is that Only DFV the DFV early acolytes, Dr. Burry, and the institutional holders have meaningful volume below $30. (it is called deepfuckingvalue for a reason)
3. Given points 1 and 2, I’d consider the $148 price level as the critical defense level of your earliest, hardest retail support. You can dive deeper into the 26 Jan trading day and possibly make a case for other levels as well, but I’ll roll with that for now.

Ok, so maybe the Melvin guys weren’t really lying. The Tiger Brokers’ data showing short interest drop from 26 to 27 Jan coinciding with the massive and sudden price dislocation upward on 27 Jan.

If new shorts entered the game it would have been near the highs, possibly selling into the forced buying of what I’ll just assume was the overnight Melvin squeeze and into the early market hours on 28 Jan. Possibly aggressive momentum shorting on top of the Robin Hood BS, the bots, and the networking issues came together in a perfect storm with that HFT ladder attack on the vertical dive. That was the time when I chickened the fuck out and sold my GME. *insert paper hand emoji*

“Never test the depth of river with both feet.” — Warren Buffett

As you can see on that downside wick on 28 Jan, the huge momentum briefly pierced the retail line before being slammed back up. If you are interested on analysing it, you can take a closer look in the fibonacci chart.

There are other things you can take away, or theses you can come up with from these and other charts you may have access to. Hopefully, for you newer traders I’ve given you a useful glimpse into how I might try to use readily available data to improve/challenge/refine a working thesis to ensure I’m better prepared for the days ahead. You should find the tools that seem to work best for you.

special thanks to : r/jn_ku, r/GushingGranny1 and ofc r/WallStreetBets