Jaroslav Kohout
Trading Against Consensus During WallStreet Bets Hype Introduction
This blog post will take us on a journey of trading against consensus during Wallstreet bets hype. If you remember the hype about GameStop from the beginning of 2021, you might have noticed that after the crowd was done with GameStop and its hundreds of percent return rollercoaster rides, the crowd has shifted its focus to the Silver. In the article below, we will break down the trade but most importantly will analyze the Silver trade through the lens of a trader. Applying the trader mindset when everyone and their dog is hyping the market on one side (long), it’s important to watch the other side for even more favorable opportunities (short). If you want to find out what was the opportunity and how to leverage similar conditions in the future, continue reading down below.
This blog post is based on the video done by Richard near the beginning of the 2021.
Silver WallStreet Bets Prelude
Setting The Trading Context
For all those who remember the Wallstreet bets hype that started the meme stocks trading, GameStop won’t be a new name. At one point there would not be a day when financial media would not mention this “unknown” company and its crazy short-term returns. For those who are not familiar at all with the story, Wallstreet bets are essentially a Reddit forum, where retail traders join forces and pile in (ideally with leverage) into lower liquidity stocks to create good old pump and dump. Specifically, in this case, they joined forces and started to buy this not very well know company GameStop. One of the goals for the retail crowd was to achieve a short squeeze of the hedge funds that were on the other side of the trade trying to short this company based on the poor company fundamentals. The classic David vs Goliath trade. Retail money vs hedge fund money. Now, why is this important for our Silver trade? Thanks to the crowd, the GameStop trade idea turned out to be very successful generating hundreds of percent returns for retail investors who got long early. The success of this particular stock attracted more retail participants into the market and at the peak of the Wallstreet bets hype, Silver became one of its next big targets.
The Silver Trade
Given the GameStop success, the crowd has shifted its attention to Silver and hoped for a similar opportunity to lift the market and break the multi-month highs. Essentially not a bad idea to go with the breakout that could work. Let’s have a look at what actually happened and how could you profit from this consensus trade.
On the image above you can see the Silver daily chart. In the blue box, we can see a breakout that essentially turned out to be a false breakout. Given the base where the last rally started from (just below the blue box), the first thing we can think of is the positioning. All those longs jumping into the long trade, driving prices closer to the highs. Now, let’s zoom on a shorter timeframe to describe the positioning.
Imagine you are long already, let’s say you got long below the blue box and you are well in the money. You get your confirmation bias when nobody is talking about other side then long. Everyone is talking about Silver as a possible next candidate for a short squeeze. Although this idea can be still valid, we are talking about the size of Silver of 11billion vs 50million in GameStop. We are dealing with a different caliber of a product. But even if we ignore that, we as traders should always remember one important lesson:
What happened in the aftermath of the break, was not a follow-through, but a range followed by a liquidation move that we as traders could profit from.
The Liquidation Move Of the Silver Consensus Trade
I recommend you to watch the price ladder execution where you can see what the liquidation move looked like. The price ladder recording starts here. But given the chart above, we can clearly see a rangebound market prior to the move down (blue boxes). This range was a clear sign that the market was positioned and “hoped” for a possible next leg up. When that next leg up, did not come, most of those positions that got long, placed their stop just below the range low and started to unwind.
So what was the trade idea and how you could have profit from itt? Watching the range low once the low was established was something to be watched. Usually, the first dip is most of the time still bought. But as you can see, the more time we got below the low, the less energy was there for the market to rally. Essentially after the third dip, the rally back up ended up fairly quickly and then the liquidation move came. A similar situation repeated after that one more time with lows being tested again and once it failed to rally above the previous range highs, the liquidation move came.
Connecting the dots of the consensus trade with the mindset of a trader that is looking at the right locations (range lows) for the right clues (volume and failed initiative to the upside) gave you a chance to profit from the overcrowded consensus long liquidation trade.
If you liked this article, you might check these videos as well:
- How To Get Onto A Liquidation Move – Price Ladder Trading | Axia Futures
- The Short Squeeze & Long Liquidation Explained – Trade Strategies | Axia Futures
- Trading S&P Long Liquidation Strategy – Price Ladder Trading | Axia Futures
And if you like our content and would like to improve your game, definitely check one of our courses that teach you all the techniques presented by AXIA traders from a market profile, footprint, or order-flow. If you are someone who likes to trade the news, we have a great central bank course. And if you are really serious about your future trading career, consider taking AXIA’s 6-Week Intensive High-Performance Trading Course.
Thanks for reading and until next time, trade well.
JK
