Your Questions About Paper Trading Site

Helen asks…

What are your golden rules of on-line trading?

I found “Rivkin’s Rules” on a Yahoo finance site > http://au.biz.yahoo.com/switzer/finance/05102006/sharing_golden_rules.html
Can you add to the list or comment about these rules?

John answers:

I’ll give you some of mine; I have way too many:

Create a written plan. A plan is composed of two primary parts:
1.The blueprint is a preliminary action plan developed before trading begins. Review the plan every few weeks. It is a living document that evolves over time. I always revise my plan for the summer trading season since summertime market conditions call for different strategies.
2.The Journal is a day-to-day microadjustment of the blueprint. This is the document that requires you to adhere to your plan. Emotional aspects of trading on a daily basis are written in here. Questions such as
·Did I follow my blueprint today?
·Did I maintain discipline?
·Did I do the research required?
·Did I recognize support and resistance levels through volume?
·Was my methodology correct?

Ask these questions and answer in your journal. These represent intangible issues that technology cannot capture through a database. If you did the right thing and still lost money, make a note of that. If you did the wrong thing, make a note of that. Other questions should also be answered:
·What was my strategy (earnings play, split, momentum, etc.)?
·Did I exit on fear or logic?
·Did I do the right thing, and do I feel good about my decision?
·Would I make the same trade again in the same situation?
·Did I have confirming indicators when entering the trade?
·Was my discipline followed? Why or why not?

Writing stimulates thought. When you put your plan on paper, it somehow becomes more real than it is when it is just in your mind. Things may seem fine, but in black and white it seems unrealistic or improbable. Nothing is more expensive to a trader than trying to make something happen that is unrealistic.
Another important reason for the plan: you cannot deny it. If the plan says not to hold postions overnight, and you do anyway, you realize you have violated your own discipline. When the plan is only in your mind, it is easy to rationalize it away, and your discipline erodes like the sands of a beach.
The plan is a way to keep score, rather than just a P&L. Many more factors play into the process than just money. Emotions, accountability, responsibility, focus, and creative thought all get brought into the dynamics of trading versus a one-dimensional fixation on monetary gain.
Writing down what these motivations and components are for you while tracking your adherence to them each day, through your journal, increases exponentially the likelihood that you will achieve your desired result.

The rules are ever changing
Get a mentor.
There are no silver bullets in this business. No easy way to make money in trading.
Develop conviction.
The market has little room for arrogance or ego.
Avoid holding positions over weekends.
Scared money never wins.
Get the knowledge.
Know your strategy.
Use Level II as an indicator, not as an all-inclusive decision support tool.
Read the levels, not the ticks.
Know your order routes.
Gaps tend to close.
Supply and demand determine price.

Never allow your order flow to be sold. This is routing orders to a wholesaling market maker instead of routing them directly to the market through systems such as the SOES, SelectNet, a variety of ECN’s for NASDAQ issues, or through SuperDot for listed stocks.

Don’t wait for certainty. Especially for day traders, think of stocks as either “thick” or “thin.” Thick is highly liquid, and both relate to price levels of liquidity or lack thereof.

Let market indications lead you in and out of trades.
Be multidimensional. Mixed styles that includes day trades and swing trades.

Trade liquid stocks. Screen criteria for stock selection.
·Daily volume of at least 500,000 shares per day.
·Sufficient intraday price volatility. Look at beta.
·Correlation with major indices and sector leaders.
·Minimum of five active major market makers.
·Reliable technical indicators available.
·Strong book on at least two ECN’s.
·Tracked by analysts.
·News easily available.

Avoid chaotic stocks. Low-price penny stocks (less than $5).
Match volume to time. Fast markets, low liquidity spell = trouble.
Specialize.
Trade stocks with good correlation. Between stocks and major indices and sector leaders, provides relative indications.
Trade strong sectors. Be aware of sector rotation.
Do the research.
Forget about chat rooms.
No clarity, no trade.
Size the open.
Watch fair value.
Never use market orders on the open.
Never chase stocks.
Always look for confirmation among trading signals.
Know why you are in a trade, and where you will exit.
Set mental stops.
Don’t expect to squeeze all the juice from the orange.
Exit on reaction, not price.
Know the range within the time horizon you are trading.
Day trade the ranges and swing trade the trends.
Always use indicators to confirm charts and patterns.
Never replace instincts with technical analysis.
Never ignore volume regardless of your trading style.
Don’t make it rocket science, ‘cause it ain’t.
Know thyself.
Inspect what you expect.
Update and review weekly.
Don’t lie to your spouse or significant other.
Be humble and admit mistakes.
Never let emotions control you.
Avoid stock tips.
Never take home a loser.
Open trades on the anticipation of news; offset positions on what actually happens.
Define the strategy, and match the discipline to it.
Allow for more heat.
Exclude commission costs from your exit criteria.
Never let your confidence exceed your skill.
Know thy tax law.
Contemplate before you speculate.
Lose the labels. I’m a trader means big time. Rather, I’m a student.
Learn to pace yourself.
Follow your instincts.
Find your own game or recipe for success.
Learn to lose.
Make trading a habit.
Never let your attitude suffer.
The market is always right.

Stay grounded. Multidimensional trading requires a wide range of view that allows for other possibilities and tools that will help confirm and defeat ideas you have. Trading with a narrow focus of any one style is not advised.

Common Trading Rules to Follow:

Average winners, not losers
Never let a winner turn into a loser.
Take profits often.
Never mix disciplines. If you open a day trade, close a day trade.
Never try to trade back a loser. Don’t fight the tape.

—————————-

And that’s not the half of it.

One more tidbit of advice:
Success in trading will be enhanced if one abandons all efforts at prediction and focuses instead on knowing what to do when and if certain prices occur in the market.

Sharon asks…

Online forex trading??

For stock trading, there’s the virtual stock exchange which is free and damn good. Is there a free, virtual forex trading site?? Any help?

John answers:

Just open an account with a broker and do your paper trades. Make sure you don’t cheat and trade like real.

Most brokers will offer it.

Steven asks…

what is conductive paper?

I just did the field mapping experiment in physics and my professor wants us to do research on the conductive paper we used. I’ve searched around but I can’t find any information about it. Can anyone give a site where i can read about it?
it would be highly appreciated

John answers:

It seems to trade under the name “Teledeltos Paper” as far as I know, pretty exclusively. Just Google that name and you’ll be able to access a fair amount of information about and around it.

Carol asks…

virtual stock trading and general information sharing?

I am looking for a site to share information about stocks and practice trading. Found a few sites: marketwatch.com, stocktrack.com, stockarena.com, stockfucius.com:
Does anybody have any experience with these or have any other suggestions?

John answers:

Http://vse.marketwatch.com/Game/Homepage.aspx

I don’t have any experience with this site, but it is a training site. You can do the same thing on your own if you follow my advice.

We must all become educated investors, much ore so then our parents were and start sooner. These are some basic steps to get you started and you will learn a lot more then just trading.

Step 1.
First decide what kind of brokerage you want to work with. You can open a brokerage account in your bank, with a large full service brokerage or an internet brokerage. I find when I get help, most people want to sell me things that are better for them…. So I use http://www.scottrade.com because it’s cheap and easy with low frills. I like their streaming quotes and I do my own research and make my own investments. But any low cost internet brokerage service is fine.

Step 2. Get a subscription to Barrons or Investors Business Daily… Do this for 6 months or a year. At first, It seems a bit mysterious, but pretty soon you start to understand the terms and things that investors are looking for and what they are afraid of

Step 3. If you have some money to invest, put it in 3 month CD’s right now. First the market is unstable and second you have some homework in Step 4 to do before you do any investing.

Step 4. Go out to the internet and search on the following subjects. Become very familiar with the concepts.
Asset allocation
Long term investing
inflation
Roth ira vs ira
Large med small cap
Value vs growth
Indexed mutual funds
No load mutual funds
ETF
Sector funds
Bonds CD preferred stock
dividends
International funds
Market cycles
volatility
Fundamental analysis
Technical analysis
In most cases, I think it is wise to use indexed mutual funds and ETF to build the base of your portfolio.

Step 5 go to http://clearstation.etrade.com/ and sign up for a free account. Play around there by looking at graphs and fundamentals. If you click on the graph names, you will get clear information about what the graph is based on and how to interpret it. I think it’s also a good idea to pretend you have $10,000 and start buying and selling on paper. Keep track of where you are each day for a month… It’s a lot easier to lose play money then real money….
WARNING: don’t rely on technical analysis alone. These graphs are good at telling you WHEN to buy and sell, but now WHAT to buy.

Step 6. It’s always a good Idea to see a CFP (certified financial planner). Their job is to work for your benefit, not to sell you investments. They can cover subjects like employee benefits, insurance, budgeting, living trusts, 401k, taxes and real estate as well as investment types and investment types to keep away from.

Always strive to do your own research… you’ll find everyone sounds like an expert so take everything people tell you with a grain of salt. It’s not easy in the beginning but soon you will be the expert.

Don’t get involved with futures, currency, options (unless you get stock options at work), commodities, annuities or other derivative type investments at this time.

Good Luck

Susan asks…

Best place to “paper trade” stocks?

Where can I find the most realistic simulation, which would include all the costs, commissions, taxes, etc. involved in buying and selling (trading) stocks?

Is there such a site?

John answers:

Yahoo finance > my portfolios > create portfolio
http://finance.yahoo.com/

You’ll have to keep track of trade commissions. Taxes would be unknown until the end of the year, whether they be long/short term capital gains along with earned & ordinary income.

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