Look, I get it — simulated trading is a joke. That’s what everyone says. It’s a joke, there’s no real emotions involved, there’s no real money involved, blagh, blagh, blagh, why even do it?
Luckily, I don’t listen to ANYBODY when it comes to my own trading growth. I blaze my own path, learn from my own mistakes and trade based on my own ideas. And so should you.
Anyway, the other Saturday I was bored as hell (because the market was closed, duh) and it was raining outside, and I was too lazy to go surfing — and whatever — somehow I stumbled across this website called ChartGame.
What ChartGame does oh so simply and oh so beautifully is present you with a stock chart from the S&P 500 between the years 1998 and 2014 and it asks you if you want to BUY, SHORT or TIME LAPSE (to move the chart forward without taking a position).
Once you make your decision you are shown how the chart looked at the end of that day. Up, down, flat. And you are asked if you want to KEEP SHARES or SELL.
And that’s it.
There a couple indicators you can add on your chart and you can choose from a couple different time frames, but that’s all you get. And when you trade you trade your whole account on every trade (you start with $10,000.00) and all gains and losses are cumulative.
Here’s what the whole setup looks like.
Like I said, simple and beautiful and I spent an entire weekend playing it. And after a couple failed attempts where I blew up my account and lost my equity, I was able to turn that $10,000.00 into about $100,000.00.in a period of 3 years total trading time.
Here’s my ending equity:
So what did I learn playing a simulated trading game on a lazy Saturday? A lot!
1. A stock in motion tends to stay in motion — for longer than you think.
Up or down. If the trend is set, it tends to stay active, a lot longer than you think. So look for stocks going up. Why? They’re already heading in the direction you want — so hop on board. If they keep going in that direction, keep the trade open. If they stop going in that direction and reverse — get out.
2. Small losses are AWESOME.
Is your trade a loser after 1 day? Get out. Down 2-3%? Get out. Whatever your metric is for a loser to be a loser — get out when you see it. Becasue I can guarantee you this, the one time you decide to “wait and see” if your loser comes back is the time that trade is going to crash -50% and take your entire account with it.
Most all of my account blow ups happened this way — one losing trade that I didn’t want to close — and POOF –account gone.
3. Trading takes an amazing amount of patience.
I already knew this — but now I really know it. There are times when you will have 2,3,4,5,6 and more losers in a row. There are times when your account will not move for 20 trades. You have to hang tough. You have to keep your cool and keep following your plan. These flat periods usually precede periods of mega growth.
4. You don’t need to be right every time to make money.
I was wrong about 50-60% of the time and I made a ton of money. That’s becasue my losers were all very small and only lasted a couple days. My winners on the other hand were usually very large.
5. Compounding returns is where it’s at!
Maybe not for you, but it is for me. When I’m winning my trades get larger. When I’m losing my trades get smaller. That way if I’m in a losing streak the losers get smaller and smaller over time. And if I’m in a winning streak the winners get bigger and bigger over time.
6. Know your setup when you see it.
I know my setup like the back of my hand. It’s a breakout to new highs out of a base or a continuation pattern, — or it’s a stock that LOOKS like it’s about to do either one of those things. That’s it. I only trade stocks over the 50 day MA and I look for lower priced trades.
No indicators. No multiple time frames. No fundamentals. Just stocks going up or stocks that look like they’re about to go up.
7. Don’t spend a lot of time looking for the perfect stock.
In ChartGame you get to skip a bunch of stocks before you see one with your setup. When you see the setup you trade it. If it works, you keep it open. If it doesn’t, you close it down. There isn’t much more to it than that.
8. Time stops — use them!
I never hear traders talking about time stops. A time stop means that you will only give your trade a certain amount of time to make a move or you’ll close it out. I usually give 5 days max for something to happen. If nothing happens I close and move on. Simple as that.
9. Know what you are looking for.
I have a folder full of charts of winning trades. I call it my WILF file. WILF is an acronym that stands for “What I’m Looking For”. I burn those charts into my mind. That way, when I am in a winning trade, I know what it looks like and I know what I have to do. It also helps me know what I’m not looking for and how to know when I’m that trade as well.
10. You might blow up your account before you make millions.
Dan Zanger did it. Nicolas Darvas came close. A slew of pros in The Market Wizards did it. They blew up their accounts on the way to looking for huge gains using a method that worked for their personality. That’s life in the market. If you learn from your mistakes (and you should be) then each of those blow-ups will teach you valuable lessons you will need to learn.
So there you have it. 10 important trading lessons I learned playing a simulated trading game. Go check it out. Let me know how you do. I’m sure you’ll learn a lot.
Until next time…