December's Stock Market Challenge Game Newsletter

The temperature is dropping but this contest is getting hotter and hotter. With only one month to go in the competition, the pressure is building on who will become the ultimate Stock Stars come January 16th, 2009.

With the holidays upon us, it presents the perfect time to sit back, relax, grab a cup of cocoa and hunker down on your portfolio. No better way to escape the craziness of the season than immersing yourself in the craziness of the market. Happy Holidays (and trading) from everyone at the Stock Market Challenge.

Armed with an array of five computer screens on his desk, Doug O’Brien watches stocks like a hunter in the woods, waiting for any sign of movement. Mr. O’Brien, the 65-year-old retired insurance sales manager from Ste. Hyacinthe, Que. has dominated the financialpost.com Stock Market Challenge contest by devoting almost every waking minute to watching the market. As of the middle of last week, he had turned his $100,000 in play money into $1,113,000, for a gain of 1,013%, having made an average of just over 40 trades a day in just 87 days.
“You've really got to be concentrating on what you're doing with the charts and with the numbers during the day, not doing other things," Mr. O’Brien said. "The great thing for an old guy like me is that it keeps your mind busy. "The contest, which ends in mid-January, awards $25,000 in real money to the top trader (25 or more trades) and the top investor (24 or fewer trades), with $15,000 for second place in each category and $10,000 for third. While Mr. O’Brien’s success with play money may inspire others to try the same techniques with real money, the odds are against day traders. The day-trading community consists of perhaps the 1% who know what they are doing, like Mr. O’Brien, and a great horde of unemployed folks with delusions of wealth.
For those who might be tempted to quit their day jobs (if they haven’t already been pushed), buy five computers and arrange the screens on a desk and start tapping keys, Mr. O’Brien has a warning: “I play fast and loose with this funny money. It's not real money and I got a good lead, so I take chances that I don't normally take in real life," he said. For example, last Monday, U.S. automakers Ford and GM looked like they were about to receive a generous bailout package, so Mr. O'Brien bought 100,000 shares of each. When the bailout was delayed, the shares plunged, and he lost $5,000 in 60 seconds.
"It's dangerous. You don't do it with the real stuff," he said. Mr. O’Brien begins his day at 7, studying business newspapers, including the Financial Post. Online, Mr. O’Brien goes to:

Financial Post columnist Don Vialoux’s free Tech Talk site (dvtechtalk.com), which offers Mr. Vialoux’s pre-opening comments and details on which stocks began new trends the previous day, along with share price charts he finds interesting.

Montreal-based Kitco Precious Metals, whose Web site, kitco.com, includes dozens of links to the latest gold news, contributed commentaries on precious metals, press releases from mining companies, and fundamental and technical analyses. The hazard here is that an investor may become so engrossed with the material that he forgets to trade at all.

Shark Investing (sharkinvesting.com). Although it has three paid subscription levels – Shark Biotech, for US$650 a year, Shark Investing Pro, US$875 a year, or Shark Platinum, at US$4,995 a year – Mr. O’Brien said he prefers the site’s free information.
"There are a lot of sites that offer something for free to get you interested," he said, "and then if you want the rest you have to pay." He uses the sources to compile lists of a dozen or more stocks on each of the TSX, NYSE and Nasdaq that should make major moves up or down during the coming day.
Mr. O’Brien said he is careful to do all his reading before and after the trading day, lest he be distracted at a moment when he needs to act quickly. “You've really got to be concentrating on what you're doing with the charts and with the numbers during the day, not doing other things," Mr. O’Brien said.
Mr. O’Brien has led the contest almost since its beginning, and has been swamped by requests for tips and advice from other players. In an Oct. 19 post on the contest’s forum, Mr. O’Brien offered a few ideas behind his strategy.

Choose 30 to 40 high volume, volatile stocks to follow.

Use a one-minute graph to follow the trajectory...Since most stocks fluctuate with the market, always watch the Dow and TSX graphs.

Check to see if a change in direction is rapid or slow. “If the move is rapid, I usually resist taking a position since you can quickly be on the wrong side of a trade when the market reverses,” Mr. O’Brien wrote.

When the market moves more slowly, you can buy several stocks, “however, since consistency in the market these days is short lived, always be prepared to sell,” he wrote.

“Don’t wait for the market to turn to start selling since you will not have time to sell all your positions if you wait too long.”

“Never shoot to get the top of the move. A profit is a profit, even a small one. Lots of small profits add up. Also, by trading several stocks at once, you might catch a real rocket and end up with a big score.”
Mr. O’Brien says those who want to learn effective trading techniques should read the Market Wizards series of books by Jack D. Schwager, in which the author interviews successful traders and asks them about their strategies and tactics. The first edition, in 1988, was followed by the New Market Wizards in 1992 and Stock Market Wizards in 2001.

For each of the successful traders in Mr. Schwager’s books, there are thousands more who have been less successful, losing their capital to the dangerous combination of greed and gullibility. Not surprisingly, many day traders have gambling problems.
The U.S. Securities and Exchange Commission’s Web site includes a page “Day Trading: Your Dollars at Risk,” which warns that “most individual investors do not have the wealth, the time, or the temperament to make money and to sustain the devastating losses that day trading can bring.” The site goes on to warn that day traders should only risk money they can afford to lose, and offers a link to the Connecticut Council on Problem Gambling (http://www.ccpg.org) which provides a set of questions to test if you have a gambling problem. “Day trading is an extremely stressful and expensive full-time job,” the site warns, noting that traders must watch the market continuously and pay high commissions for trading, training and computers.
“Day trading strategies demand using the leverage of borrowed money to make profits. This is why many day traders lose all their money and may end up in debt as well. Day traders should understand how margin works, how much time they’ll have to meet a margin call, and the potential for getting in over their heads.”
It goes on to warn against “hot tips” and “expert advice.” “Remember that “educational” seminars, classes, and books about day trading may not be objective. Find out whether a seminar speaker, an instructor teaching a class, or an author of a publication about day trading stands to profit if you start day trading.”

Richard Morrison, Financial Post
December 16th, 2008
from: December's Stock Market Challenge Game Newsletter