Popularized by a Reddit community known as r/WallStreetBets lingo, “diamond hands” is an idiom used in stock market trading to discuss holding volatile stocks and crypto, even when the price drops rapidly.
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What exactly does diamond hands mean, though?
“Diamond hands” specifically refers to someone with high risk tolerance and the ability to stomach high volatility in their assets. In internet culture, it means someone is holding onto a volatile stock or crypto asset while the price drops significantly. They are said to have “diamond hands” — which means they don’t “fold” their hand, i.e., sell the asset, while the price is dropping.
While having “diamond hands” can be seen as a good thing, it’s also a risky investment strategy that could end up losing you a lot of money.
Diamond Hands Definition Summary
- “Diamond hands” signifies holding onto a volatile investment, like stocks or crypto, through extreme price drops, showing a strong belief in its future value
- The term was popularized by the Reddit community r/WallStreetBets during the 2021 GameStop event as a rallying cry to not sell under pressure
- Diamond Hands is a high-risk investing strategy that can lead to massive gains if the asset recovers but also devastating losses if it doesn’t
The Origin of Diamond Hands
The phrase diamond hands was popularized in 2021 when r/WallStreetBets members teamed up to create a short squeeze in the meme stock, GME 一 they shorted the stock and called on each other to have “diamond hands” and not sell until the stock went “to the moon.”
Diamond Hands vs. Paper Hands: A Tale of Two Investors
While Diamond Hand traders have a clear conviction on an asset and will hold onto their investments during volatility, a “paper hand” trader, on the other hand, is someone that doesn’t have the patience to hold their investment positions.
“Paper Hands” traders are easily shaken by market volatility and often exit their positions when they see any sign of risk. Their primary objective is to minimize risk in order to prevent losses. If you’ve got paper hands, you’ll sell under pressure to avoid losing money. “Paper hands” is the opposite of “diamond hands.”
Here’s how each trading style compares:
| Diamond Hands | Paper Hands | |
|---|---|---|
| Mindset | Focused, committed, long-term holder | Emotional, unsure, quick to sell if price drops |
| Risk tolerance | Very high risk tolerance | Very low risk tolerance |
| Trading strategy | Long term hold on specific assets, well-researched | Short-term trader, scalp or momentum trades |
Is “Diamond Hands” a Good Strategy? Risks vs. Rewards
Having diamond hands can come with massive rewards, but it is one of the most risky investing strategies for investors. Holding a volatile asset isn’t for the faint of heart, so know the potential risks and rewards before choosing to employ a diamond-handed investing strategy:
Rewards
The most obvious rewards for having diamond hands is the potential for significant gains from your investments. If you buy an asset that jumps in value — even after several steep drops in price — you could earn a substantial amount of money.
Online investors can also benefit from online “clout,” respect from the online investing community. To some investors, this is just as important as making money from trading.
Risks
Dumping all of your savings into the stock of one company or one memecoin could end in you losing all of your money if that asset goes down and doesn’t come back up.
This means the risk of “diamond handing” a cryptocurrency or meme stock is a risk of total loss of your entire invested capital.
Real Life Examples of Diamond Hands
The GameStop short that made “diamond hands” a more mainstream saying is a good example of the perils of trying to time the market.
In 2019, GameStop was struggling. Hedge fund investors had targeted it for short selling, meaning they would profit if GameStop stock went down. In 2020, people who were interested in investing and weren’t part of hedge funds had taken notice thanks to r/WallStreetBets.
The interest from Reddit helped raise GameStop’s stock price, and it hit its peak on Jan. 28, 2021 at over $500. Robinhood, the main investing app used by investors getting advice from Reddit, froze buy orders of GameStop stock. The freeze hurt the stock value, and GME closed at $193.60.
Knowing When To Let Go
As of this writing, the stock is under $23. While some people were able to make a lot of money when GameStop was at its highest, others lost a lot of money. Others are still holding to potentially profit from another surge in price.
If you want to invest in whatever becomes the fixture of r/WallStreetBets, know that it comes with high risks.
Conclusion: The “Diamond Hands” Philosophy
Diamond hands investors have 100% conviction in the investments they choose, but this comes with a high risk of loss. While investing in popular meme stocks or cryptocurrencies can be fun, if you invest too much money, you could risk financial ruin.
You should never “diamond hand” hold an investment that you are comfortable risking total loss on. Never invest money in single stocks or crypto that you don’t mind losing. Spread your risk by building a diversified investment portfolio outside of any meme stocks or crypto. This can help you still “diamond hand” a few investments, but not lose everything in a risky bet.
Lydia Kibet contributed to the reporting for this article.