IIt’s no secret that technology has forever changed the face of investing, especially during this pandemic. Technology has leveled the playing field, allowing more individuals to invest in the stock market and cryptocurrencies, both through trading platforms and better access to company information.

Social media has had a huge impact on retail investment. However, individual investors should do more research on the stocks they are investing in than just reading what the crowd is saying about them on social media. Here are some ideas on how to use technology to improve your chances of investing success.

Social networks: no turning back

Let’s start with social media, which has served as the gateway to investing for many retail traders. At the start of the pandemic, people who had never invested on their own before had a surplus of time and money. As the days of COVID stretched on for months, then years, more and more individuals rushed to the markets.

Reddit forum WallStreetBets caught Wall Street’s attention as retail traders appeared to coordinate efforts to buy large amounts of stock in heavily shorted stocks like GameStop and AMC Entertainment. These so-called “meme stocks” have brought some hedge funds to their knees for using massive amounts of leverage to sell these names.

Believe it or not, WallStreetBets has been around for around 10 years and now has over 11 million users, so it’s not like it’s a novelty for individuals to discuss their trades online. However, what has been new in the last two years is the extent to which this subreddit and other similar online forums affect markets.

Warnings on using social media in investing

A review of some of the conversations during the stock frenzy even in early 2021 suggests that many investors could have picked stocks based on what the masses were talking about. Such a practice calls into question whether any of these investors were doing their own due diligence before buying any of these stocks themselves. It certainly seems that a significant part of the upward movement in these stock prices was due to investors following a trend blindly without thinking.

There are some key things to keep in mind if you’re getting your stock ideas from social media. According to Dennis Koutoudis of LinkedSuperPowers Group, a globally recognized LinkedIn and social selling expert, retail investors should be careful to avoid comments left by potentially fake profiles.

“We need to be careful about comments left by accounts that use nicknames instead of real names,” he said. “[If] they have pictures of small children (or fake pictures), they use fake names, they have no profile picture or incomplete profiles, no messages, or just generally you see something which causes a red flag as to whether this profile is real or not. The last thing we want is to be influenced [in]whether or not to invest in a company because of the comments left by a large number of fake profiles online!”

A twist on using social media in investing

Social media has certainly cemented its place in the investing world, and it can be a great way to come up with stock ideas, but maybe not in the way you might think. Moez Kassam of Anson Funds explained how he uses social media to come up with action ideas based on what the masses are saying.

However, he doesn’t just buy what everyone else buys. It uses social media to gauge when retailers’ sentiment on a particular title is about to change. This practice allows him to predict with some success what will happen to actions that frequently appear in conversations on social networks.

Similarly, social media users can analyze posts on various stocks when making decisions on what to buy or sell. Instead of just buying what everyone else is buying, they can look for shifts in sentiment among other individual investors and try to be at the forefront of any changing views as they arise. occurs.

Technology for Due Diligence

In addition to social media, retail investors also have other technologies to improve their investment results. Charting platforms such as TradingView or Stock Rover are a form of technology that an increasing number of retail traders are using. Many trading platforms like Robinhood also offer their own charting capabilities.

Investors who have not yet considered other technologies to use in their endeavors might initially be confused about how to use stock charts. However, a little reading can make a huge difference.

For example, examining stock charts allows you to identify trend lines, which indicate whether the stock is going up or down or bouncing. You can also spot support and resistance lines where a stock’s price tends to bounce back if it stays within the range.

Additionally, you can gain a better understanding of historical trading volumes so you can detect when a security is suddenly seeing more or less activity than it has seen historically. You can also see when a stock becomes volatile.

Avoid a short-term mentality

It is important to look at the long term when evaluating a stock. Many inexperienced retail investors only look at what a stock is doing in the short term and make their decision based on that. However, it’s far too easy to get caught up in a short-term trend on a stock that has no real longevity.

Of course, stocks generally don’t move continuously in one direction because there will be ups and downs, but looking at a stock’s longer-term trends can be very revealing. Commission-free trading can increase the short term for retail investors, as they no longer accrue fees on each trade.

Using one of the many digital tools available to you will allow you to avoid this pitfall. Most online and mobile brokers have a range of tools that they make available to their investors. If the only technology you’ve used to inform your trades is social media, it wouldn’t be a bad idea to check out what your online broker offers.

The more you learn about the stocks you are watching, the more informed your trading decisions will be over the long term.

An area where cutting-edge technology does not serve retail investors

A more recent trend in retail investing is the rise of options trading. According to data from Options Clearing Corp., a record 39 million options contracts traded daily in 2021, up 35% from the previous year, and retail investors account for more than 25% of this activity . The problem is that technology has advanced so much that individual investors now have access to options trading, but that’s not necessarily a good thing.

Some might consider Robinhood and other commission-free trading platforms to be the beacon children of the democratization of investing, and that may be true. They have placed the ability to trade literally in the hands of the masses through their mobile apps. However, just because new technology allows you to trade options contracts doesn’t mean you should.

Eleven percent of monthly active users on Robinhood made an options trade in the first three quarters of last year. However, less than 1% have made a multi-leg options trade involving two or more simultaneous trades.

CNBC explained that the most basic put and call options commonly used by retail investors have a much lower probability of profit and are more expensive than the more advanced strategies used by professional traders. Most options brokers have three to five levels of options trading, and they don’t grant access to the most advanced strategies until the third level.

This means that investors cannot learn more about options trading and move on to the higher levels where it is usually possible to make more money by potentially losing a lot more money beforehand. So, it might make sense for retail investors to drop this area of ​​investment technology. Just being able to do something doesn’t make it a wise decision.

Final Thoughts

Over time, retail investors will learn more about the technology available to them and the level playing field will become even fairer. Once upon a time, institutional investors had access to vast amounts of information before retail traders, but that has changed. Former hedge fund manager Dominique Mielle noted this significant change over the past 20 years.

However, many retail investors are unaware that they have access to this information or the technology that can help them keep pace with professionals. The more you learn about the stocks you are watching, the more informed your trading decisions will be. Technology has improved to the point where retail merchants can not only transact themselves, but also make smarter decisions than they could have done years ago.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.