8 Social Media Dos, Don'ts For Supercharging Your Trading Returns

Social media platforms like Twitter, Inc. TWTR, Facebook, Inc. FB and Snap Inc. SNAP have revolutionized the way we communicate and spread information.

But any regular social media user knows it can be both a blessing and a curse.

Social media can be an excellent tool for traders, but only if they are using it for the right reasons. Here are four ways every trader should incorporate social media into their trading day and five ways they shouldn’t.

Social Media Do: Identifying trending stocks. StockTwits is a great social media platform for figuring out which stocks are on the move at any given time. Stocks that are trending on any given platform may be ripe for trading opportunities.

Social Media Don’t: Chasing the herd. Getting a heads up about which stocks are trending on social media is one thing, but letting fear of missing out (FOMO) dictate your trades is a bad idea. Just because a ticker is popular on social media doesn’t mean you need to be long or short that stock.

Social Media Do: Monitoring breaking news. There is often a delay between when a stock starts to move and when the first media reports come out about why it is moving. If a stock makes a big break in one direction or the other, social media is often the first place to go to understand why.

Social Media Don’t: Relying on unconfirmed information. Social media may be the first place that news breaks, but anything posted by a random user on social media should always be treated with extreme skepticism. Whether it be malicious attempts at manipulation, innocent passage of misinformation or simply good, old-fashioned internet trolling, social media is full of inaccurate information that shouldn’t be relied upon without verification from a reputable source.

Social Media Do: Following trustworthy and active social media accounts. You can filter through the slog of garbage on social media by only following accounts that provide quality information and analysis. To keep your feed purely market-related, consider separating the account you use during trading hours from your personal account and only follow people posting about the market.

Social Media Don’t: Wasting your time. Facebook, Twitter and any other social media platform profits from increasing engagement, which means all their resources are devoted to designing their platform to suck you down rabbit holes and waste your time. Monitoring Twitter throughout the trading day is one thing, but spending all day retweeting stock market memes is obviously not the best use of your time.

Social Media Do: Learn from other traders. Read about the trades other successful and trustworthy traders are making and try to understand what they are doing that works. Many traders share their trades on social media in real time, and it helps to get a feel of what the top traders are doing and why.

Social Media Don’t: Worrying about what other users say about your trades. The worst part about social media is the constant barrage of negativity, so be prepared for every trade you post or comment you make to be criticized. Consider any constructive criticism, but don’t let random strangers pressure you into or out of a stock. There’s a good chance they are simply on the other side of the trade.

Related Link: Survivorship Bias May Be Tricking You Into Taking Too Many Investing Risks