Millionaire Mentor Update: WallStreetBets, GameStop, and Robinhood

As if the market couldn’t get any crazier! Last week’s drama with WallStreetBets, GameStop, and Robinhood was … unexpected. But it led to the rise of retail traders, and I think that’s a good thing.

Add to that FOUR Trading Challenge grads hitting huge milestones. Then, top it off with a solid week to end another great month of trading. (I donate 100% of my trading profits to charity.)

I’ll get into all the above in this edition of the update. But first, it’s super important with everything happening in the markets that you come prepared for battle. Retail traders are going up against some of the smartest, most ruthless, people on the planet. You MUST prepare.

Never Go to Battle Armed With a Butter Knife

Last year we saw unprecedented numbers of new traders enter the markets. Some seek information and knowledge. Others just want hot picks. Still others want a sense of community and a way to stick it to the suits on Wall Street.

I say it again and again … most traders lose. And they lose because they’re not prepared. Worse … most come with the wrong mindset and no CLUE about how dirty this battle really is.

So as you continue on this journey, do yourself a favor. Commit to building your knowledge account. Don’t let the events of the past week go without burning the lessons into your brain…

Top traders prepare for battle by studying. They put in the time and effort to gain knowledge and skills. They understand the risk involved. (Always follow rule #1 and cut losses quickly.)

Let’s look at what happened last week…

WallStreetBets, GameStop, and the Rise of Retail Traders

First, if you’re not up to speed, read these recent posts. They provide essential background information. This is key education for any trader…

Now let’s try to put it into perspective. First…

Use the Trading Challenge for Q&A

I’ve had thousands of emails and DMs asking me questions about GameStop. I’ll answer a few here, but remember Q&A happens in the Trading Challenge. It’s the reason I created it.

Apply for the Trading Challenge Here

That said, this is a big story with important lessons. So here are a few thoughts on GME and WallStreetBets…

Cheering From the Sidelines

The number-one question people ask is “Would you buy GME now?”

If you follow me on Twitter or see my posts … I’m cheering on the Reddit army and the WSB community. But at the same time, I wouldn’t chase these stocks.

I think it’s wrong to have the HODL mindset. Hold and hope is not a strategy.

So the answer: heck no. After a crazy run from the $30s to the $400s before pulling back to the $200s as I write, I think it’s overvalued.

Still, hedge funds have been crushing the little guy for years. And who knows if there are more hedge funds getting squeezed. So I don’t want to underestimate the short squeeze. (It’s reported that Melvin Capital lost $7 billion, or 53%, of its capital in January.)

And who knows what the WallStreetBets people will do? They’re trying to get everyone to hold. I think that’s a mistake. It’s always a good idea to take profits into strength, especially ridiculous strength.

Also…

Short Squeezes Aren’t an Exact Science

Regulators could step in and halt the stock. They could ask for more information from the company. After an extended halt, it might open a lot lower.

Or more brokers could have liquidity issues like Robinhood. It had to restrict buying last week to avoid going out of business…

Robinhood Lost His Tights

That’s right. Robinhood, the so-called democratizer of the stock market, has finally shown its true colors. And it’s NOT Sherwood Forest green. The volatility shook Robinhood’s tights right off in the January cold.

The traditional story — the one where Robin Hood takes from the rich and gives to the poor? That’s NOT how it works with the app. I’ve been warning traders about it for YEARS.

Last week, Robinhooders everywhere learned the hard way. So much for the company’s 2016 “Let the People Trade” marketing campaign. On Thursday, it restricted users from trading shares of GameStop (NASDAQ: GME). It also restricted buys of Koss (NASDAQ: KOSS) and several other companies.

Some people say Robinhood is un-American for restricting trading. But I think they’d be angrier if Robinhood collapsed and they couldn’t access their money. There’s some protection through the Securities Investor Protection Corporation (SIPC). But it takes time.

It’s not a perfect system.

Why Did Robinhood Restrict Trading?

The bottom line is that Robinhood needed more cash reserves. That’s due to how trades get cleared through the Depository Trust & Clearing Corporation (DTCC).

When Robinhood restricted buying GME and AMC, it led to…

Rage Against the Machine

Why is there so much hate against Robinhood when E-Trade, Interactive Brokers, and other brokers also restricted buying?

The difference is that many people thought Robinhood was for the average trader. They didn’t realize it’s just like any other broker. The whole Robinhood marketing schtick is busted. It’s just marketing…

So now people are thinking, “Wait a minute … You’ve been working with Citadel? Citadel is one of the biggest short sellers of GME? Wait … what?”

Can A Hedge Fund Also Be a Market Maker?

To be clear…

Citadel LLC (the hedge fund), and Citadel Securities (the market maker), should have a ‘firewall’ between them. I’m not suggesting that isn’t the case. I’m only trying to help you understand the uproar caused by last week’s restricted buying.

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Robinhooders started putting two and two together and felt betrayed.

The app received 100K negative reviews on Google Play in under 24 hours. Apple’s App Store reported similar numbers. The next day, Google deleted 100K negative reviews. Not to be outdone, Apple did the same thing. Big tech looking out for big tech — go figure.

What’s next?

Down But Not Out

Remember, short squeezes usually end badly. The hedge funds might’ve lost the first battle, but they’re not out. They’re rich for a reason. They underestimated WallStreetBets, but what have they been up to over the weekend?

My gut tells me this will go back and forth. While I’d LOVE to see more short sellers getting squeezed on this, there’s something else to consider. What happens if we see more…

Brokers Pushed to the Limit

If more brokers get pushed to the limit, some could go out of business. If that happens, it could affect you. It could affect the entire economy. With the stock market up so much in the past year, something like that could lead to a great crash. These are dangerous times.

Dear Wall Street

If you’ve read my book “An American Hedge Fund” you know how I feel about this industry. Don’t get me wrong, I love trading. But I also believe in a free market AND transparency. What we’ve seen in the past week is pretty nasty.

And no matter what happens going forward, we need answers that make sense…

Again, this industry is CRYING for transparency…

And now we’re hearing from the STT Breaking News guys that Robinhood’s planned IPO is on hold. You can’t make this stuff up…

Let Traders Trade

I think traders should be allowed to trade what — and how — they want. Yes, there’s risk involved. It’s part of the deal. Let the people trade.

Empower traders to get educated. Don’t try to hold them back. The internet makes it possible for anyone to study and gain knowledge. Encourage learning instead of hiding in your ivory towers.

A lot of industry pundits have said things like, “The Reddit Army shouldn’t be allowed to do this!” But the reality is, Wall Street big shots meet for idea dinners and do the exact same thing. And they’ve been doing it for years.

Trading Mentor

I wish the WallStreetBets community and Reddit army good luck. I’ll be watching. But two lessons I hope all my students/readers take from this are…

Stick With What You Know Best

For me, it’s dip buys. There are a lot of dip buys right now with these squeezed stocks. Whatever works for you, stick with it and trade safe. As much as I’m cheering for WallStreetBets, I won’t let myself get lured into something I’m not good at.

Also, I’m not shorting any of them. I’m not shorting anything, for that matter. Why?

Short Selling Sucks Right Now

Plain and simple. Short selling is tough in this market. The WallStreetBets short squeezes prove that even Wall Street can feel the pain.

Now, I need to give…

HUGE Props to Four Top Traders

Again, what a week! This is what I envisioned over a decade ago when I started teaching. But to have four traders who have been through the Trading Challenge reach such big milestones in the same week is incredible.* I’m SO PROUD of them.

The amazing thing is they agreed to do a combined Trading Challenge/TWIST webinar on January 27. Watch the webinar, but first, understand…

None of these guys are an overnight success. Instead, they’re traders with an incredible work ethic and a burning desire to get better.

Take notes…

(*Please note that these kinds of trading results are not typical. Most traders lose money. It takes years of dedication, hard work, and discipline to learn how to trade. Individual results will vary. Trading is inherently risky. Before making any trades, remember to do your due diligence and never risk more than you can afford to lose.)

TWIST: Where It All Started for These 6 Top Traders

Isn’t it cool that Dom was there? I totally respect his, or any trader’s, desire for privacy. So I’m grateful he shared his experience on the webinar. Thanks again, Dom, and congratulations!

Be sure to congratulate these great traders in the comments below.

Trade Review

This week, instead of going into individual trades, I’ll share my stats.* See details of last week’s trades here.

Here are my stats for the week ending January 29, 2021:

  • Number of trades: 44
  • Wins: 33
  • Losses: 11
  • Winning %: 75%*
  • Avg $ gain: $2,429*
  • Avg $ loss: -$870
  • Profit: $70,589 (I will donate 100% to charity.)*
  • Biggest loss: NaturalShrimp Inc (OTCQB: SHMP) -$5,141
  • Biggest win: Ozop Energy Solutions Inc. (OTCPK: OZSC) $7,157*

(*Please note: my results are not typical. I’ve spent years developing exceptional skills and knowledge. Always remember trading is risky. Never risk more than you can afford.)

Millionaire Mentor Market Wrap

I don’t know how long this battle between hedge funds and retail traders will last. It will be interesting to see whether regulators try to take down WallStreetBets. Especially considering how big it’s gotten. They’re doing what Occupy Wall Street tried to do a decade ago. But now they’re succeeding and hitting hedge funds where it hurts … in their pocketbooks.

Even as I write, Robinhood announced users can hold bigger positions in some stocks again…

It’s going to be an exciting week. Who knows which brokers will survive? Or which short squeezes will thrive? Who knows whether WallStreetBets can hold the line?

For me, I’ll wait for plays and patterns that I know. But I will take part in the gossip because I love the rise of the retail traders against hedge funds.

Have a great week. Before you go study…

Congratulate Matt, Dom, Kyle, and Huddie in the comments below! Also, what do you think of the WallStreetBets, GameStop, and Robinhood drama? Comment below, I love to hear from all my readers!

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