Strategies for Success
Stock market games are a great way for students and individuals to learn about investing and personal finance. These games simulate real-world trading experiences, allowing participants to make decisions about buying and selling stocks, bonds, and other financial instruments. But how do you win a virtual trading game? The answer lies in understanding the unique characteristics of these games and developing strategies that take advantage of their rules and limitations.
To Win: Be Aggressive
Winning virtual trading games, like HowTheMarketWorks.com, where the stock market 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!
To be more aggressive in virtual trading games, you need to be willing to take calculated risks and trade stocks that may not be suitable for your own portfolio. This means having a higher risk tolerance and investing in stocks that may have a higher potential for loss, but also have a higher potential for gain.
For example, a very aggressive investment would have been investing in Tesla (TSLA). Back in 2016 it was trading below 20 dollars per share. At that time, many stock analysts were bearish on the company, they were concerned about how how they would deliver on their ambitious plans for electric vehicle production. However, Tesla’s stock price more than quadrupled over the next 4 years, reaching almost $300 per share in 2020. Imagine if you were holding TSLA in your virtual brokerage account back then?
Another example was the surge in GameStop (GME), when in 2021 retail investors coordinated on a SubReddit one of the biggest short squeezes in the history of stock trading. Anyone who bought shares in GameStop around that time would have benefitted from the rally up to nearly $500, (while in 2024 it’s back down to around $25 per share). In stock market games, being aggressive means being willing to take on more risk in order to potentially achieve higher returns.
To Win: Follow The Market
The most important step is to identify the direction of the financial markets. This step is necessary if you only have one account to trade in the stock market game. 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 stock 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. In other words, do you think the market will continue to go up (bear) or will it go down (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 stock market game.
Read more about How to Put Together Your Formula so you understand your investing strengths and weaknesses, and what you are willing to risk while virtual trading!
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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 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 highly recommend that you set-up your virtual stock market game so that stocks must have a value over $10 to avoid the problem with Penny Stock trading. Yes, a student can achieve far greater returns in the risky world of day trading penny stocks, but it will teach them little about real world stock market trading.
Conclusion
Virtual trading games are a unique and exciting way to learn about investing and personal finance. By understanding the rules and limitations of these games, you can develop strategies that take advantage of their characteristics and increase your chances of winning. Remember, the key to success in virtual trading games is to be aggressive, follow the market, and buy stocks that provide fast returns. However, it’s important to know that virtual trading is very different from real investing.
Remember this is a virtual stock market game. It’s okay to make mistakes as you practice portfolio management with virtual money and virtual stocks. As you test out different stock ideas, keep in mind your risk tolerance. Based on your past performance, you’ll seen discover how much risk you’re willing to take on. The best way to learn how the market works is to stay informed about the companies or industries you’re investing, in so you’re ready to get started for real life investing.
In real-world investing, it’s essential to be realistic, diversify your portfolio, and have a wealth management mindset. Your goal is to preserve and grow your wealth responsibly so you can reach your financial goals with as little financial stress as possible.
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.
