Contest leader coasts toward finish line

Richard Morrison, Financial Post
Published: Wednesday, January 14, 2009

Doug O'Brien, the leader in the Financial Post's Stock Market Challenge contest, has been reducing his trading frequency as he glides down the home stretch.

"There's no reason to take big chances now," said Mr. O'Brien, who looks all but certain to win the $25,000 prize for top trader when the contest ends Friday afternoon.

The event, which started in mid-September, awards a cash prize of $25,000 to each of the top investor (fewer than 25 trades) and top trader (25 or more trades). Second-place finishers in each category get $15,000, with $10,000 for third. The prizes will be paid out after the contest administrators, Stock-Trak Group, audit the results.

Mr. O'Brien, who plays as risingstar, has turned$100,000 in play money into $1,295,408, a gain of about 1,200%. He has made 4,237 trades in 121 days.

"The contest has been a real learning experience for me," Mr. O'Brien said.

Until the contest began, Mr. O'Brien said, he had traded only Canadian stocks. Unable to short-sell Canadian stocks that traded below $3 in the contest, he was forced to turn to the U. S. market, where he found an abundance of high-volume small-cap stocks that could be profitably sold short, he said.

The U. S. market's larger volumes and higher volatility mean traders have to move more quickly than they do when dealing in Canadian stocks, Mr. O'Brien said.

The second "fantastic" thing he learned was to take lots of small profits and to sell immediately once a stock's price starts heading below what he paid for it.

"I don't care if there are more profits on the table, I can't stand losses."

Mr. O'Brien said he's averaged a profit of $580 per trade or $14,500 per day, but warns that a $580 profit can disappear in a few seconds.

Some contestants have asked if he seeks out thinly traded stocks, but Mr. O'Brien said that's the opposite of what he looks for. Thin traders are rarely profitable, he said, noting that the first sorting criteria he uses is to identify the 100 stocks that have the highest trading volumes.

His most important buy signal? The share price charts themselves. After looking at charts for several hours every day, he said, he can now determine almost instantly whether or not he's interested in buying.

Mr. O'Brien praised Financial Post columnist Don Vialoux, whose dvtechtalk.com Website he checks before trading begins each morning. "He knows his stuff," Mr. O'Brien said. "He is very good at picking charts that are either going up or going down. Honestly, there's probably one winner in there every day. It's like easy money."

Mr. O'Brien has a comfortable lead over another Quebec contestant, third-place Efrain Saldivia, a 24-year-old telemarketer from nearby St. Hubert, Que., who plays as PeruFace and has turned his initial stake of $100,000 in play money into $684,345, having made 737 trades.

Mr. Saldivia said he credits his younger brother Gary for teaching him everything he knows.

"If you think I am good, you should see my brother," Mr. Saldivia said, adding the two plan on teaming up after the contest ends.

Mr. Saldivia said he ignores fundamentals and focuses strictly on the charts, using Nasdaq.com,Stockcharts.comand Prophet.netto select stocks. He spends about an hour before markets open reviewing what he's going to do, and analyzes things again after markets close.

On weekends, he spends about 15 hours scanning for new gems, learning new techniques and reading books about Jesse Livermore, an early 20th century stock trader who gained and lost several fortunes.

"It doesn't feel like work," Mr. Saldivia said. "It's fun to me. When I place a trade, I don't hesitate. I do it without thinking."