TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

Reddit is not only coined "The Front Page Of The Internet", it has now become the front page of finance in many cases & Reddit traders are talking about more than just AMC & GME now. Whether you're talking about penny stocks or higher-priced shares, millions of retail investors are flocking to the discussion platform to get their research in. I've written on plenty of Reddit stocks in the past, and, for the most part, there is at least some merit to the "research" that some of these traders conduct. Meanwhile, you still see the "YOLO" posts giving little insight and mostly hype as the reason why someone is looking for an entry into a specific stock.

Right now, market analysts are sounding the alarm on meme stocks. Former SEC chair Jay Clayton discussed how it's great that there are more market participants. However, on the topic of these socially driven stocks, he said they were a different type of beast. In a CNBC interview, Clayton explained, "Let’s separate the two things...The meme stocks and the non-fundamental activity around meme stocks, that’s something regulators, and we all, need to be cognizant of...We do need to look at meme stocks and departure from fundamentals, but if part of it is earlier investing and broader participation, it is needed.”

Needless to say, social sentiment is now a very real metric that needs to be taken seriously. It can help to identify the money flow into or out of certain stocks. For instance, have a look at AMC Entertainment (AMC) on Monday. As shares slid to their low of the day, the stock price of another meme stock began climbing. ContextLogic (WISH) has become a new internet darling among retail traders and the veracity of those getting behind the trend has increased. In fact, among the most popular stocks on subreddits like Wall Street Bets, WISH dethroned AMC from its spot in the most-discussed stocks on Reddit for a period on June 21st. As they say, follow the money for opportunities, and with stocks like AMC, GME, and others (including WISH), I think it's worth taking a closer look at what the retail masses are saying.

So as someone who focuses on penny stocks, I thought it would be worth it to put a list of popular names on Reddit together and see if the retail hoards are as accurate as some may think. For this list I took data from SocialSentiment.io and wsbDaily to compile the stocks:

Should You Believe The Hype?

It's easy to get caught up in the hype. FOMO or "fear of missing out" is a very real thing right now. But just because many of these stocks are popular, that doesn't mean they're right for you. Even if you love to make money in the stock market, your personal style will dictate your ability to benefit from these stocks. Let's say you're a full-time employee working from 7 AM to 5 PM EST. Sure you can take periodic breaks here and there and maybe place a trade or two. That's fine for less volatile stocks. But many of these meme stocks fluctuate dramatically in price within short periods of time. You can argue that overall, AMC was a multi-month winner if you "just bought in January and forgot about it." But let's talk reality if you're like many novice traders, would you be able to stay in a trade that drops 30-50% in a single day or would you sell out for fear of losing it all?

My guess is that the vast majority of people getting their feet wet because they read about a stock on Reddit aren't holding onto a stock if it drops to those depths. In the case of these social media-fueled breakouts, there's more attention that needs to be paid especially if you're talking about some of the Reddit penny stocks of the bunch.

Are Meme Stocks Right For You?

So what's my point? I see all too many novice traders getting burned by the meme breakouts. They assume it's like putting a dollar into a slot machine and hoping for the best. But there are better ways to go about it. First and foremost, use the information as part of a much broader trade idea. See what people are talking about and look into it in more detail. If there are biotech penny stocks that've become a focus for Redditors, for example, upcoming trial data may be the underlying catalyst for recent momentum. Knowing important dates can help determine if the trade idea has some time to unfold or if it's too short-term. When it comes to trading, it's important to trade when you can, not when you want. Below is a good summary of a way of trading while taking advantage of a multi-day move and something that may not require as much minute-by-minute attention as scalping or day trading. I'm talking about swing trading:

Video Length: 01:23:56

In this section of the video, the trader explains how he did a swing trade on one of the top meme stocks in the market, AMC. Breaking down the chart patterns in play and accounting for the "what ifs" of the trend to come were things that the trader discussed. I'll let you watch the video to understand this better. But when it comes to trading, knowing your technical levels can help you to better understand a given trend and, even more so, if that trend is sustainable. So, before you jump into the next round of meme stocks on Reddit, your first step is to plan out your trade. 

Do you trade any of these Reddit stocks? If so, do you have a strategy or what is your approach to profiting from social sentiment? Comment below and let's discuss.