Going viral or trending can fast-track your path to success if you want to build a solid social media footprint. Sure, not everyone who views your content will stick around for the long haul, but maybe you can turn an overnight sensation into the foundation for long-term success. The same theory applies to trending stocks: when a stock trends or "goes viral," the demand for its shares increases. And when demand for a stock rises, the share price frequently does as well.
Why do investors look for trending stocks? For the same reason they look for any high-risk stock: to make a lot of money in a short period. Trending stocks are volatile by nature, especially when the triggering catalyst is flimsy or built on incomplete information. And some stocks will trend for all the wrong reasons, such as Super Micro Computer Inc. NASDAQ: SMCI did for its questionable accounting. In this article, we’ll explain trending stocks in detail and provide insights into safely identifying and investing in them.
What Are Trending Stocks?
Why do stocks trend? The answer is often all over the map, depending on the company or sector involved. Some trend on good news, like an earnings beat or a significant stake from an activist. Others trend on bad news, like a product failure or accounting scandal. However, there needn’t always be a consequential reason; trending stock lists can come from tweets, Reddit posts, or TikTok videos. In fact, sometimes, a stock will trend simply because its ticker is similar to the ticker of another trending stock. (Yes, really. Check out what happens with AMC Networks Inc. NASDAQ: AMCX every time AMC Entertainment Holdings Inc. NYSE: AMC goes ballistic.)
However, the common denominator is some sort of catalyst that initially triggers the stock price movement and gets investors talking. This catalyst is Patient Zero for a trending stock’s virality, and it's up to investors to determine its staying power. Here are two examples to emphasize this point:
1. GameStop: GameStop Inc NYSE: GME was the original meme stock, which caught a tremendous viral rally when a Reddit trader named Keith Gill amassed a large stake and began posting his thoughts on the company’s financial picture. The stock rallied to unprecedented heights by mid-2021, but the rally was based on social media sentiment and not an accurate fundamental turnaround. The stock collapsed once the trend faded and has never approached 2021 levels.
2. NVIDIA: NVIDIA Corp. NASDAQ: NVDA has been one of the biggest winners in the AI-infused bull market, and its mammoth earnings releases often create their own viral trends. However, NVDA has also been on the side of some sillier catalysts, like whenever an online investor posts a 10K showing someone in Congress buying shares (Nancy Pelosi is almost guaranteed to trend here).
Trends can be unpredictable, so it's crucial to manage risk. You must understand the sector or company of the trending stock and be prepared to pivot quickly should the trend dry up faster than you anticipated.
Why Trending Stocks Are Popular
Trending stocks do more than just (potentially) line the pockets of their buyers. They create a sense of community, a group that can follow along with company news, express their thoughts and views, and share trading ideas and strategies.
If you’ve been on social media during a crypto rally, you’ve undoubtedly seen Bitcoin holders tell non-Bitcoin holders to "have fun staying poor." While not every community is full of people you’d invite to Thanksgiving, these shared goals influence investor psychology and create a sense of FOMO (Fear of Missing Out) about missing parts of the rally.
Social media has enabled these trends to play out far faster than they would in the age before virtual communication. A stock had no chance of "trending" when people only discussed investments with their friends, family, and coworkers. But now influencers with six- and seven-figure follower counts can talk about popular stocks to buy and create viral trends almost out of thin air like Keith Gill did with GME. Institutional investors have also taken notice of viral trends, as hedge funds battled over meme stocks just as hard as retail traders on Reddit.
Benefits and Risks of Investing in Trending Stocks
Investing in trending stocks can be a mixed bag. Only some stock market trends are backed by robust fundamental and technical data, and social media is a prime breeding ground for pump-and-dump scammers. Investing in trending stocks requires weighing the pros and cons against your personal risk tolerance and investment plans.
Benefits of Investing in Trending Stocks
- Quick Gains: Trends can move through social media like wildfire, creating big winners in short timeframes. Trending stocks are ideal for day and swing traders riding momentum strategies who don’t necessarily care about fundamentals.
- Liquidity: Trending stocks are often associated with increased volume, as more investors enter the trade as the trend reaches them. Where there’s volume, there’s high liquidity, which helps lower transaction costs and creates more efficient trading environments.
- High Visibility: Visibility differs from liquidity. Liquidity is just a number on a screen, but visibility means a stock people follow and talk about in real-time. Instead of a number, you can put a (digital) face to other people in the trade and bounce ideas off like-minded traders through social media.
Risks Associated with Investing in Trending Stocks
- Volatility: Trends invite excessive volume into a trade, creating a volatile stock price. If you’re a risk-averse investor, following trending stocks might create more stress than profit.
- Hype over Substance: Not every trend is built to withstand scrutiny. The meme stocks were all hype, struggling businesses that rode a wave of enthusiasm and quickly plummeted once the excitement wore off. You can still profit from hype; just have clear eyes about your strategy.
- Potential for Significant Losses: If you invest for substance and get only hype, you could suffer big-time losses as the trend unwinds. Always set clear profit and loss guidelines when trading volatile stocks (and use a stop-loss order!)
How to Find Trending Stocks
Locating the best trending stocks requires more than traditional due diligence. You’ll need to look for sources outside financial media; here are five tips to consider.
1. Monitor Financial News
While you need a diverse set of news outlets, reputable financial sources are always a good place to start. Companies like Bloomberg, CNBC, and Reuters have fact-checked sources and accurate information on earnings, merger activity and product lines.
MarketBeat can help you locate trending stocks through our different screening tools. For example, you can use the Stock Screener to search through companies based on criteria like sharp volume increases, unusual price movements, or recent new highs.
Like it or not, social media platforms have considerable sway in the direction of trending stocks. Some apps to consider if you want to follow trending stocks include:
- Reddit
- X (formerly Twitter)
- Discord
- Facebook
- TikTok
Other platforms, such as Threads and BlueSky, are beginning to gain market share. Additionally, you can consider stock-specific social communities like StockTwits or HootSuite, which can track conversations and sentiment across platforms on various stocks.
4. Check Google Trends
Why not utilize the ultimate trend-tracking tool in your stock research? Google Trends monitors interest in specific search terms, showing how often popular topics or events are "Googled." Investors can use this to track interest in their holdings and find signals on when to sell or add more shares.
5. Follow Influential Investors
Influencers and accounts with large followings can move markets as easily as financial analysts or CNBC talking heads. To utilize influencers in your research, you’ll need to find ones who share your investment philosophy and techniques. But remember that these people often aren’t trained equity analysts, and their opinions should never replace independent research.
Tips for Investing in Trending Stocks
- Use Different Order Types: Stop-loss and take-profit orders can help minimize risk by pinpointing the exact prices at which you’ll close the trade. Using different order types helps maintain a rules-based approach and leaves emotions out of the equation.
- Understand Risk Tolerance: Do you know what type of investor you are? If not, the wild world of social media is a bad place to find out. Trending stocks are volatile, and their movements often make little sense. A high risk tolerance is required to invest in these companies.
- Avoid the Hype: You can make a quick buck off a trending penny stock, but is that reward worth the potential downside? If you want to preserve your capital, try to avoid hyped-up companies with cult followings like AMC.
The Trend Is Your Friend—Until It’s Not
Investing in trending stocks can be exciting since your friends and social media followers can get in on the action. Entire communities have sprung up around trading stocks, and some of these connections have led to actual profits. However, the risks that come with these companies must be addressed. The trend is your friend until it isn’t. Always stay informed about market trends and thoroughly research companies before buying shares.
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