Easiest Way to Win a Virtual Trading Game

TO WIN: Be Aggressive

Winning virtual trading games, like HowTheMarketWorks.com, where the game has a short duration and there are no trading criteria (the game does not specify the type of stocks eligible to be traded), requires entirely different tactics than you would use with your own money. They require you to be VERY AGGRESSIVE!!! You will need to take risks and invest in stocks that you SHOULD avoid in your own portfolios because of the high risk factor.

TO WIN: Follow The Market

The most important step is to identify the direction of the market. This step is only necessary if you have only one account to trade. If you have two or more, then you can cover your bets by going LONG in one account and SHORT in the other.  But if you only have one account, you must make sure you are on the right side of the market.

For a novice trader, the easiest way to determine the market’s direction is to look at one of the Market Indicators.  They are all relatively difficult to understand for a novice but that is ok. You don’t need to understand them to use them. All you need is to find a site that will interpret the market direction. For example, if you look at the S&P 500 Bullish Percent Index chart and look to see if the chart is showing green (BULL MARKET).

If the market indicators confuse you, you can look at a chart of a market index. All of the most popular are listed at http://stockcharts.com/. The most popular index is the Dow Jones Industrial Average chart.  Look at the direction of the chart (up or down) and determine if you are a BULL or a BEAR.

Once you decide the direction of the market, you will need to identify which stocks have the most potential to move in that direction the fastest – as you are under time pressure from the game. The rest of the article will help you identify these stocks.

TO WIN: Use Leveraged ETFs as they Provide Fast Returns

Leveraged ETFs are known as a “cheat” by regular stock game players as these ETFs typically provide far faster returns. ETFs are Exchange Traded Funds that act like Mutual Funds but trade like stocks.   Leveraged ETFs use financial derivatives (a sophisticated means of trading) and debt (like bonds) to amplify the returns of an a variety of indexes. Once again, it is not important to understand Leveraged ETFs, but they will provide far faster returns than regular stocks, bonds, ETFs or Mutual Funds. Since you have already chosen your best guess at the direction of the market, choosing a Bull ETF (market going up) or Bear ETF (market going down) will be easy. Leveraged ETFs come in several multiples of an index including 2X and 3X ETFs.  A 2X will try to double the return on its specified index and a 3X will try to triple its index.  Of course, you will want to use 3X ETFs.  The highest rated 3X ETFs are:

3X Bull ETFs
Direxion Financial Bull 3X – Triple-Leveraged ETF (FAS)
Direxion Small Cap Bull 3X – Triple-Leveraged ETF (TNA)
Direxion Large Cap Bull 3X – Triple-Leveraged ETF (SPXL)

3X Bear ETFs
Direxion Financial Bear 3X – Triple-Leveraged ETF (FAZ)
Direxion Small Cap Bear 3X – Triple-Leveraged ETF (TZA)
Direxion Large Cap Bear 3X – Triple-Leveraged ETF (SPXS)

NOTE TO INSTRUCTORS

We would highly recommend that you specify criteria to your stock game so that Leveraged ETFs are not used. It is far more instructional to specify that the students only use “stocks” in their portfolios and that the stocks must have a value over $10 to avoid the problem with Penny Stock trading.  Yes, a student can achieve far more return in the risky world of leveraged ETFs but it will teach them little about real world stock market trading.

Glossary

Market Indicators: Technical indicators that are used by traders to predict the direction of the major financial indexes.  The most known are the Advance/Decline Index, Absolute Breadth Index, Arms Index and McClellan Oscillator.

Leveraged ETFs:  An exchange-traded fund (ETF) that utilizes financial products and monies due to enlarge the returns of an underlying index. Leveraged ETFs are accessible for almost all indexes, like the Nasdaq-100 as well as the Dow Jones Industrial Average.

Market Index:  By aggregating the value of a related group of stocks or other investment vehicles together and expressing their total values against a base value from a specific date. Market indexes help to represent an entire stock market and thus give investors a way to monitor the market’s changes over time.

Remember that this is a stock game.