Many traders believe that you must trade what’s trending online, assuming that jumping on trending stocks, currencies, or assets based on social media, news, or other online sources will guarantee profitable trades. While it can be tempting to trade based on popular trends, it’s important to understand that trading simply because something is trending does not guarantee success. In fact, following trends without considering market analysis, risk management, and a well-defined strategy can lead to poor trading decisions and unnecessary losses.

The belief that you must trade what’s trending online overlooks the fact that successful trading is built on research, strategy, and discipline, rather than just following the latest buzz.

Why Traders Think You Must Trade What’s Trending Online

Several reasons contribute to the belief that trading the latest trending assets is the key to success:

• Fear of missing out (FOMO): When something is trending online, many traders feel a sense of urgency to get involved, fearing that they’ll miss out on potential profits if they don’t act quickly. This fear can lead traders to chase trends, even if they haven’t fully analysed the asset or market.
• Social proof: When a particular stock or asset is trending online, it often garners attention from social media, influencers, or even news outlets. Traders might assume that if so many people are talking about it, it must be a good investment or trading opportunity.
• Momentum and excitement: Trending stocks or cryptocurrencies often show strong momentum, leading traders to believe that this momentum will continue. The excitement surrounding trending assets can create a sense of confidence, even if the underlying fundamentals or technical analysis are not favourable.
• Quick profits: Trading trending assets can seem like an easy way to capitalise on short-term movements. The allure of quick profits can drive traders to jump into trades based solely on the trend, rather than conducting proper research and due diligence.

However, while these reasons may seem appealing, they often lead to impulsive decisions that aren’t based on sound trading principles.

Why Trading What’s Trending Online Isn’t Always the Best Approach

While it’s tempting to follow trends and capitalize on momentum, there are significant risks involved in trading based purely on what’s trending online:

• Lack of analysis: Trading what’s trending online without conducting thorough research can lead to poor decisions. Trending assets may not have strong fundamentals or technical indicators supporting their movement, and chasing trends can lead to entering at the wrong time or at unsustainable price levels.
• Short-term volatility: Trends often arise due to news, social media hype, or sudden events, which can lead to sharp price movements in the short term. These price swings can be unpredictable, and without a solid strategy, traders can easily get caught in the volatility and experience significant losses.
• Herd mentality: When everyone jumps on the same trend, the market can become overcrowded, and prices may inflate beyond their true value. This can lead to “bubbles” that eventually burst, leaving traders stuck in positions at unsustainable levels.
• Overtrading: Chasing every trend online can lead to overtrading, where traders take on too many positions or trade too frequently in an attempt to catch every opportunity. This increases transaction costs and the likelihood of making emotional decisions based on market noise, rather than a clear strategy.
• Delayed reactions: Often, by the time a trend becomes popular online, it may already be nearing the end of its profitable run. If you wait until something is trending to get involved, you might end up buying into an asset that has already reached its peak, missing out on the best entry points.

Successful trading is based on careful analysis, strategy, and risk management — not just reacting to what’s popular online.

How to Trade More Effectively Than Simply Following Trends

Instead of relying on trends, here are a few more effective ways to approach trading:

• Develop a trading strategy: Instead of jumping on trending assets, focus on creating a well-defined trading strategy based on technical analysis, fundamental analysis, and your personal risk tolerance. A strategy helps you stay disciplined and avoids impulsive decisions based on fleeting trends.
• Understand market conditions: Pay attention to the broader market conditions. Trends may be driven by hype or sentiment, but the best trades are often made when they align with the overall market trend or when they present an opportunity based on sound analysis.
• Focus on long-term growth: Trading for long-term growth requires patience and careful planning. Instead of chasing short-term trends, focus on assets with solid fundamentals or long-term potential. This can lead to more stable and reliable profits.
• Risk management: Proper risk management is key to successful trading. Use stop losses, position sizing, and diversification to protect yourself from the downside. Never risk more than you can afford to lose, and avoid overexposing your portfolio to any single asset or trend.
• Stay informed, but don’t chase: Stay updated on the latest market trends and news, but do not trade based on hype. Use trends as one part of your analysis, not as the sole reason for making a trade. Sometimes, it’s better to let a trend pass by rather than jumping in at the wrong moment.

By focusing on a well-researched strategy, risk management, and emotional control, you can make more informed decisions and avoid the pitfalls of blindly following trends.

Examples of When Trading What’s Trending Online Can Be Risky

• Cryptocurrency hype: In recent years, cryptocurrencies like Bitcoin and Dogecoin have often been at the center of online trends, particularly on social media platforms. Many traders, enticed by the online buzz, bought into these assets at inflated prices, only to face significant losses when the hype faded or when volatility set in.
• Meme stocks: Stocks like GameStop and AMC became trending topics thanks to social media communities such as Reddit’s WallStreetBets. While some traders profited from these trends, many others bought at the peak of the hype, only to see their investments plummet as the momentum reversed.
• Overbought stocks due to media hype: Stocks that are heavily talked about in the media or online forums may experience short-term price surges. However, without solid fundamentals to support the price, these stocks can quickly revert to their true value, leading to significant losses for those who enter late into the trend.

In these cases, the traders who made the most profits were those who carefully analysed the situation and timed their entries properly. Those who blindly followed the trend were often caught in the volatility.

Conclusion

It is not true that you must trade what’s trending online. While it’s easy to be tempted by the latest market trends or online hype, trading success requires more than just following the crowd. It’s important to focus on a well-researched strategy, manage risk effectively, and stay disciplined in your decision-making process. Trends may provide opportunities, but they should be evaluated carefully within the context of your overall strategy, rather than being the sole reason for entering a trade.

To learn how to develop a trading strategy based on sound analysis, risk management, and emotional discipline, enrol in our expertly designed Trading Courses today.