Even if you’re not a day trader, no doubt you’ve heard about meme stocks. They’re the viral beasts that take on a life of their own. They act similarly to a geyser, where pressure builds until some event — or social media post — causes a segment of investors to go crazy and shoot the stock to unreal levels.

After a while, the spectacle is over, and those stocks effectively disappear until pressure builds again. As I write this, we’re in another active phase of meme stocks.

I’ve been day trading since before meme stocks were a thing, and I have the scars to prove it. In my book and the courses I teach, I explain how meme stocks are a highly efficient way to lose your life savings if you approach them incorrectly.

What’s the “wrong way?” It’s one thing to be alerted by social media to the next active meme geyser; what you do not want to do is take your trading guidance from social media. The most-shared comments tend also to be the most extreme, designed to whip up FOMO.

Therefore, I want to share five meme-mania observations with you based on my having placed more than 20,000 trades in my career.

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1. You can’t predict the market, but you can pretty well predict human nature

People have survived thousands of generations in harsh environments by being social animals. Banding together and taking common action against common challenges worked well. The difference now is that the signals to take action come not from people in your local area with common needs but from “influencers” with their own motivations, which frequently do not align with yours.

Often, the loudest voices among investors are the ones who took their positions in a stock a while ago. Their motivation is now to pump the stock to new highs, so they can dump their positions. I’ll talk more briefly about what you can do in this situation.

2. There is no such thing as financial markets or society “learning its lesson.” Only individuals can do that.

World War I was supposed to be the “war to end all wars.” It was estimated that the first GameStop geyser cost Wall Street $20 billion, and now traders are at it again. This is all explainable by the “Moving Parade Principle.” Let’s say you play the clarinet in your local marching band, and your route will take you three miles through town.

By mile two, you will be thoroughly sick of playing the same song for the 15th time — but for the people standing at mile two, it will be the first time they’ve heard it. A lot of investors have not experienced a meme stock, and the possibilities are intoxicating.

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3. Most individuals do not learn lessons after one exposure

That includes me, I’m sorry to say. In my first two and a half years of trading, I already knew lots of rules; for example:

• Set a maximum loss per trade and sell if you reach that number.
• Set a daily maximum loss amount and quit if you hit that number.
• Do not add to losing trades by “averaging down,” thinking that you’re being clever by reducing your average cost basis.
• And DO NOT “revenge trade,” where you hope to make up for earlier bad trades by jumping quickly into another one.

I knew all these rules I set for myself, yet I broke them and several others.

There’s an old story about a man who walked up to a farmer who was sitting on his porch. The farmer’s dog also sat there, howling in pain. “What’s the matter with your dog, mister?” “He’s sitting on a nail.” The man said: “Why doesn’t he get off the nail?” The farmer said, “Because it doesn’t hurt enough yet.” It was only when my pain got great enough that I stopped breaking those rules and started to build my account balance.

4. When the opportunity seems great, the need for discipline at that moment is even greater

You need to practice discipline when your emotions are at their strongest: “Don’t miss out! This next trade could pay for that new car! Fortune favors the bold!” Doing day trading right means flying while trusting your instruments, not your gut.

Related: 3 Things Traders Must Do to Succeed in 2024

5. Your goal should be to get on base — not to hit a home run

I’ve had some six-figure trading profits in a single day, but I never woke up knowing I’d have such a day. I aimed to stay alert and disciplined and follow my trading plan. Sometimes, following my plan, it becomes clear that a day is unfolding with major volume, and my first few trades were strong winners. OK, I got on base, and today, it seems like I’m in a groove. Mickey Mantle said that on such days, he saw the baseball as “as big as a grapefruit.”

I want to make the most of this trading day, but I won’t do it by throwing all caution to the wind. I let my winners ride but with successively smaller positions. When I hit a target profit level, I’ll sell a portion of my position and let the rest run. I may end up doing this several times. In hindsight, this will always mean that I could have made more money if I hadn’t taken any off the table. But it also means that I can never be wiped out because I am locked in slices of profit.

Meme geysers definitely add great energy to the trading environment. They’re worth participating in, but only on your own terms. When your trading discipline matches the market opportunity, you’re set to have a trading day that’s memorable for all the right reasons.