Your Questions About Paper Trading Stocks

Donna asks…

Could someone explain to me the meaning of World Trade Center, Stocks and Investments?

I have never understood it. I watch those Americans on CNN staring at some tickers with weird names from companies and numbers like NASDAQ, and suddenly you see them jumping up and down, trowing papers in the sky, cheering and then panicking. It’s looks like they are having a party or something.

What’s the purpose of this? I have asked this a couple of times in real life and never understood the importance of this?

Why average people make investments? What are stocks?

What’s the purpose of these certain show (I forgot the name) that I think is shown on NBC where there is this crazy guy telling people which company is “hot” right now and which one is not.

John answers:

The best and easiest to understand place to learn these things is this website:

US version
http://www.fool.com/school/basics/basics.htm

UK Version
http://www.fool.co.uk/lrninvnov.htm

Investing is basically putting aside money now in order to turn it into a bigger pile of money in the future (e.g. Earning interest on a savings account).

Stocks (also better known as “Shares” in the UK) is a form of investing where you purchase a stake of ownership in a company…. Then selling it later on when that stake is worth LOTS more than you paid for it.
One of the best examples of this working is this guy’s life story:
http://www.salon.com/people/bc/1999/08/31/buffett/

Also, owning Stocks (part ownership) of a company entitles you to “dividends”….. Where the company pays it’s investors (stock holders) a portion of it’s profits as a kind of thank you gift for having enough faith in the company to invest their money into it -usually the amount of money the company has going spare, divided by the number of stocks held by investors.
As a rough example: $1,000,000 split between 500,000 shares being held by investors at the time it was worked out = $2 per share (though not normally that much.. Usually closer to $0.10).
So, if, for example, you bought 5 shares in that particular stock, that’s $10 earned by doing nothing… Which you can then re-invest in more shares…. And therefore (hopefully) get paid even more dividend money next time round (in addition to the value of that stock hopefully rising at the same time)

The main reason people invest is so they can keep living comfortably on more than just their pension when they’ve retired from working + also so they have a bit of extra money in their pockets to spend on fun things than if they just lived on what they get paid by working (and do so without getting themselves into monster borrowing debt).

Mandy asks…

What broker can I trade (ROC) Rockwood Holdings Inc on?

I am a forex trader but would like to invest in ROC stock. I don’t know much about brokers for stocks and bonds. I also need to be able to paper trade (demo). Im looking for a broker with low fees and extensive trading tools. Any suggestions?

John answers:

Andrew,

You can try to go to thinkorswim or gft for that.

Joseph asks…

Any Investools students in San Gabriel Valley?

Looking for a study/support group for beginner investors using the Investools method. In Monterey Park, or San Gabriel Valley.
Rookies doing paper trades, and wanting to learn more about investing in the stock market.
Hoping to form a group to meet in person(maybe Starbucks, etc), once a month or so to share what we’ve learned, ask questions, bounce ideas off each other, compare notes and analyze stocks for paper trades.

John answers:

I learned through Investools but I am not in San Gabriel Valley. I would ask this question in the forums on the Investools website. Are you still paper trading? What it stopping you from going foraward with real trades. Just take a breath and do it. I use etrade but go back to Investools for searches, especially fundamentals. Research the company and if everything meets your criteria, buy a few hundred shares in a limit order. Watch the intraday activity of the stock and sell when the stock meets your exit price. You have to get started to make money at this. Investools gives you the confidence to start trading, experience gives you what it takes to make money.

Linda asks…

How does commodity/futures trading with orange juice work?

I am confused on the trading of orange juice, or frozen orange juice. I know speculators are there to just trade with no intention with taking delivery. However are large orange juice companies/manufacturers purchasing orange juice? I ask because i may work on a paper that revolves around the the commodity market bringing foods such as oj to areas like where i live (durango,co) year round. Where we have no citrus trees at all, but we constantly have shelves stocked with oj. So is the commodity market responsible for making this juice available year round?

John answers:

If you have some free time, I recommend watching Wall Street Warriors (Its on Hulu.com). There’s one individual in the show that trades on the orange juice floor in NYC.

To answer your question, yes. Representatives of large companies buy a spot on the floor and look to buy up tranches of orange juice at the lowest price. Let’s say Hurricane Bobby is approaching the coast of Florida – a company will want to lock in orange juice now while prices are lower and before supply is cut.

I’m not really sure if any of this helps. I’ll see if I can find some other resources for you.

Lizzie asks…

What do you think of my stock trading strategy?

Ive come up with a simple, but somewhat successful strategy, tell me what you think.

For 3 weeks, I wake up at 6am (west coast) listen to CNBC to find out where the news is. I pull up those tickers and prepare to trade with my $25,000. From the news and past trades, I get 8 stocks on my screen. I noticed that these stocks I pick will either drop or increase in the first 15 to 30 minutes. When I see one shooting up, I quickly trade it, BUT, I only stay in for a really short time. Once I get to $100 a prepare to get out of the position, sometimes I will stay in a bit longer, depending on what the price is doing. Then I turn my computer off.

Ive actually averaged $188 a day, including today. Its not big money, but its consistent.. so far. Also, last year for 3 months I Paper Traded this strategy for 3 months, thats why I decided to do it for real ( I started on the third.

Anyways, am I missing something? Im planning on adding another $75,000 cash in order to increase my gains. What do you guys think?
Patrick, shorting too. This is what I was doing last year on Paper Money.
Joey V, I appreciate your positivity. Heres an example of this morning:

GMCR Sold 50.43 at 6:38
GMCR Bought 50.30 at 6:39
Profit $130 – 9.95 x 2 = 110.10

RIMM Sold 16.00 at 6:41
RIMM Bought 15.97 6:44
Profit $90 – 9.95 x 2 = 70.10

Total for the day $180.2

Im not sure why thats so hard. Anyways, I hope a year from now it continues… it may not, no idea.

John answers:

Using your example of shorting here…I am not too impressed. Why??? Because you made so little money on the trades….You might have enough skills to identify a potential short but no skills to get the maximum out of it….you are trading scared of losing a very small profit.

GMCR
********

Here is today’s chart

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=GMCR&uf=8&type=4&size=3&sid=11156&style=320&freq=6&time=2&rand=775245025&compidx=aaaaa%3a0&ma=1&maval=20&lf=1&lf2=4&lf3=0&height=665&width=720&mocktick=1

You did well to start the short when you did at $50.43 but selling at $50.30 is very poor….Using just Bollinger bands and MACD (with signal line…which works best in day-trading)…you could have followed this stock in L2 untill it reached $48.50

You showed a profit of $130 in your example since you made a total of $0.13/share you had 1000 shares…you risked $50,000….hey the math does not add up here….you said you only had $25,000 to invest???? Unless you were silly enough to be on margin for this trade…..

By your math you risked $50,000 to make a lousy $130….if you had some skill in TA you would have made 50.43 – 48.50 = $1.93 x 1000 = $1,930 – $20commis= $1,910.00 for 3 hours work.

Then I would have been impressed.

RIM
*****

It is hard to tell where you entered @ $16…but let us look at your math again….You made a 3 cent gain yet claim to have made $90 on that trade….to make that kind of money you would have to purchased $90 /0.03 = 3000 shares @ $16/share you played another $48,000.00

I am not calling you a liar….but with only $25,000 in your account….you have exceeded your margin by about $50,000…I cannot see any broker allowing this unless perhaps they allow it because you did the RIMM trade first completed it and then proceeded with the GMCR trade and you had a very fast broker who allowed this.

Http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=RIMM&uf=8&type=4&size=3&sid=50575&style=320&freq=6&time=2&rand=43398147&compidx=aaaaa%3a0&ma=1&maval=20&lf=1&lf2=4&lf3=0&height=665&width=720&mocktick=1

I am not impressed with the RIMM trade as you would have had to make that trade around 10:00am. Again you made a very risky 3 cents IMHO as the stock could have bounced back quickly, Buying it where you did WAS NOT a good daytrade Buy-IN IMHO…the stock had just taken about a 6% drop and it was done on not really bad news….you were LUCKY to make your 3 cent profit there.

Conclusion
*************
I DO NOT like your strategy…..you are maxing out your margin on each call, you are not making the most out of you good calls because you have no TA skills which are necessary for a good day-trader IMHO.

You have been lucky so far but the way you trade you could be wiped out with ONE bad result.

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