Australian Share Market Game: What You Should Know
The Australian Stock Exchange (ASX) often runs a virtual share market game for schools as well as for charity. Traders / Investors are often given $50,000 of virtual cash to invest on the ASX. The number of shares are often limited to the ASX100 or ASX200 companies. The time horizon is usually a few months, from two to six months.
Why does the ASX run these games? Of course, there has to be some ulterior motive for the ASX to run these virtual stock market games. Obviously, the game is like an advertisement promoting the stock exchange and the financial benefits of investing in the stock market. And charities also benefit from those corporate sponsored games. So the more people the ASX get to actually trade the markets, the more money ASX can make!
When I participated in the share market game back when I was in Year 10, I remember sitting down and strategising. I figured that, in order to win the game - you need to choose a very different route from everybody else. Because of the limited time, this style of trading, given the constraints, you really need to be lucky. Your choice of stock is essential in your success. In my view, you're either lucky or you're not in this game.
My strategy was this: To choose a cheap stock so that when it moves, it would be greater percentage wise than buying an expensive stock. For example, If you buy a 50 cent stock, it can potentially jump to $1.00, which is a 100 percent return. What if you buy a $10 stock: what are the chances of it jumping by 100 percent to $20 in your short time horizon? (Similar concept to the usage of leverage through derivatives)
And so my partner and I bought into a 20 cent stock called Peptech (The company is involved in research, development, production, formulation and marketing of peptides, and related products for the the pharmaceutical, veterinary and agricultural industries and was first listed on 23 January, 1986 and has stock code PTD). All $50,000 worth. I didn't win the competition. I was not lucky that time. One thing I overlooked then was the volatility factor. The stock price didn't move much if at all. These two lessons that I carry with me in my trading today: volatility is a key factor as well as the principle of leverage.
So what is your best bet when you are looking to win at the share market game? If you look at the All Ordinaries or the ASX200 index charts, you may notice that the chart has been pretty much flat compared to the past few years of a strong uptrend. This is not to say that there are opportunities out there. Scan through the list of stocks you can invest in. Look at their trends. Look at which ones are volatile. Look at stock charts which seem to be trading sideways or strongly declining. There are also plenty of companies that you may never have heard from that may be candidates of your search. Have a look at stock recommendations as well as weekly winners and losers.
Such as trading setup with the given constraints is not reality (for me). Trading isn't about luck. If I had $50,000 I would never invest it all in one go. Can’t diversify – will only get average results in such a game.