Can you potentialy make money in the stock market by scrolling social networks?

If you're a regular reader of our articles, you know that we often write about trading using uptrends or downtrends in all sorts of ways. This article will actually be no exception, although the trends we will be talking about today will fall into the category of social media trends.

Did you know that some traders and investors do their analysis through social media and can therefore be said to be making money in the stock market by scrolling through Facebook, Instagram, or TikTok? This isn't science fiction. It is a legitimate strategy that has gained a lot of popularity among speculators and swing traders, especially in recent years.

The time spent in front of mobile phone screens is increasing enormously, with many even spending several hours a day. This so-called “doom-scrolling” often borders with addiction. What's more, you rarely get anything out of this activity and it can feel like a complete waste of time. In this article, however, we will show that even this seemingly wasted time can be put to good use. All you have to do is actively observe and engage your trader/investor spirit while scrolling.

What to watch

First of all, we should specify what we are going to look for. It can be any product, service, or topic which is gaining popularity. Thanks to the rise of social media, it has never been easier to spot an emerging trend early on. And pretty much anything can be trending on social media today - from food to clothing, to adhesives. The moment something becomes a trend on social media, the brand is exposed to a huge number of followers who then buy its products.

One example for all may be the Stanley thermo cups, which have become a real hit since 2019. The company's rebuild of its marketing campaign at the time, as well as viral content on social media, had a part to play in this. For example, a video in which a woman incredulously pulls a nearly undamaged Stanley thermo cup out of her completely burnt-out car went viral. The trendiness of this product gradually grew until it was sold out in many e-stores and brick-and-mortar stores.

_{A still from the viral video that helped make Stanley thermal cups trendy (source Tiktok video.danimarielettering/TikTok) video.danimarielettering/TikTok)}

However, just because something becomes a trend does not necessarily mean that the stock of the company behind the product will immediately rise. There are several ways to confirm this thesis. But we are getting ahead of ourselves. However, we must also mention that this strategy is not entirely new - trends in things and companies have been identifiable for several decades through other indicators. It could have been huge queues outside the first McDonald's restaurants, sold-out bottles of Coca Cola or iPhones. But thanks to social media, this process has been simplified tremendously.

How to trade trends from social networks?

1. Identify a trend - social media posts about one product or company keep popping up. At the same time, it is ideal if it is not a paid advertisement. The product needs to go viral the way in which you simply can't escape it.

2. Marketability - the company behind the product or service must be exchange-traded. Otherwise, you won't make much money by spotting a trend early. You can then use CFD shares, options, or physical shares for speculation.

3. Confirmation of popularity - the mere fact that a product is popular on social media doesn't necessarily mean much. This trend needs to be monitored and confirmed over the long term. Google Trends, which tracks the frequency of searches for a certain term over a certain period, can be useful for this. In this way, we can confirm that people's interest in the product is indeed growing. If the product is available in your area, it doesn't hurt to go to the store and see if it's sold out and how many people are in the store.

4. Trading strategies - early recognition of a new trend can potentially benefit in several ways:

   Speculating on earnings - U.S. publicly traded companies announce quarterly earnings results, presenting earnings and sales for the past quarter and, for some, an outlook for the rest of the year. If a company significantly exceeds analysts' expectations and improves its outlook, its stock could rise by tens of percent. But the results could also disappoint and the stock could plummet. In short, earnings results cause enormous volatility, and there is potentially a lot to be gained. If you spot a trend early, a company's subsequent results and outlook can be better than the market expects. Using CFDs or options, you can then speculate on the company and hold the position for hours or days.

   Swing strategy or investment - if you spot a trend product that you really believe in and even think will transform the company and the market, you can speculate on its shares for the long term. To do this, you can use a swing strategy or buy the stock outright and include it in your long-term portfolio as an investment.

Examples of successful trades

Artificial Intelligence

The first example we will show here is probably obvious to everyone. It has, of course, been around for several decades, but the real boom has only come in the last year and a half. More accurately, we can date it to the end of November 2022, when ChatGPT was launched. It instantly became incredibly popular and mentions of it literally filled social media and the internet. By January 2023, the phenomenon had gained 100 million users, making it the fastest-growing app in history. An overview of the number of searches for the term "AI" according to Google Trends is in the chart below.
 

The chart shows a clear boom towards the end of 2022. However, OpenAI, the company behind ChatGPT, is not exchange-traded. So the second best choice was Nvidia stock - the company that supplies most of the chips for use in artificial intelligence. Since the beginning of 2023, Nvidia stock has undergone an incredible boom, rising from $120 to almost $1,000. This makes Nvidia a great example of trend-based speculation. However, we could definitely label this stock as a good stock to invest in as well.

_{Nvidia's stock performance over the last 5 years. Source: MT4}

Speculation on the trend from social media

Although speculating on Nvidia stock is somewhat obvious, this strategy can work great on another trend you may have also noticed. The so-called "Old money style" has become hugely prevalent on the social networks Instagram and TikTok over the past two years. Simply put, this is a style of dressing that mimics the wardrobe of the British gentry. This style is then increasingly being embraced by young women and men. Although this may seem completely absurd at first glance, the search statistics speak volumes. The chart below shows statistics from Google Trends again, this time a worldwide search for the term "old money style" over the last 5 years. There has been a huge increase in interest in this term since the end of 2022.

_{Worldwide searches for "old money style" in 5 years. Source: Google}

But how to take advantage of this trend? For someone who isn't very knowledgeable about fashion, this can be a much tougher nut to crack than going long on Nvidia as AI grows in popularity. However, those who are aware of fashion trends or googled for a while know that the synonym for old money style is the American brand Ralph Lauren. The evolution of its stock over the past year is in the chart below

_{Ralph Lauren shares on the annual chart. Source:Google}

Over the past year, Ralph Lauren shares have risen by more than 50%. The period when the company announced its financial results for the last quarter of 2023 is marked in purple. Very good results and a good outlook meant the shares rose by almost 17% in one day. Those who bought CFD shares or call options early on made a decent profit. Another brand that has been widely producing "old money" style clothing in recent years is Abercrombie & Fitch. There is literally a clamor for their clothes, as evidenced by sold-out internet retail stores and brick-and-mortar stores. Shares have even risen by a hard-to-believe 535% in the last year.

_{Abercrombie & Fitch shares on the annual chart. Source: Google}

In conclusion, of course, it is worth saying that every trend may not be immediately reflected in the results of a given company. That's why it's important to do a deeper analysis and take a closer look at the company before trading/investing. Sometimes, the growth in sales and profits alone may not lead to a significant rise in the stock; even a small detail can spoil the mood of investors. However, this strategy clearly confirms that scrolling on social media doesn't have to be a waste of time. With the right analysis, it can potentially be a good money maker.