Game Concept
As an investor I want to do my homework and carefully choose company to invest in. Let's say I checked company ABC at Stock Analyzer, read letters to shareholders and company plans, and so on. And I like it! I also compared market price and realized that current price is a bit lower than my Margin of Safety (MOS) price. WOW! I bought it!
What now? Now I want to see ABC price will go up. But the price is going down. OK, I hold my breath and check price the very next day. And... you know this filling, don't you?
This is where technical analysis comes in handy.
Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends. Technicians say that a market's price reflects all relevant information, so their analysis looks more at "internals" than at "externals" such as news events. Price action also tends to repeat itself because investors collectively tend toward patterned behavior - hence technicians' focus on identifiable trends and conditions.
The game focus is technical analysis. We believe that practice in reading technical indicators will help player develop necessary skills to make a quick and accurate buy/sell decision in a real world.
How it works
This game allows player to "live a day" with 15 minutes intervals, "wait" on weekends for the coming Monday or skip them, book trades and check portfolio value as often as player wants.
All stock prices in the game are real historical prices adjusted by splits. This means that all price fluctuations and calculated technical indicators are real also. The game processes market and limit orders executed by the same principles as broker will execute them. The game charges player a brokerage fee for each transaction and maintains player's portfolio, it calculates technical indicators and shows current market price for any available stock and let payer buy or sell it with the game money. Your use of the Game is governed by Game Rules.
The main goal of the player in this game is raise as much money as possible by buying and selling stocks. The better annual growth rate of player's portfolio the better the game score is.
Buying and selling stocks using Technical Indicators
There are bunch of different indicators or charts available, however, we focus only on those that recommended by Phil Town in his book "Rule #1". Phil Town calls it "The Three Tools" - Moving Average, Stochastic and MACD.
Please keep in mind that the existence of price oscillations is hypothetical and statistical at best - stock price movements are a consequence of the actions of human decision-makers and past behavior of market variables does not necessarily predict future behavior.
Moving Average
General recommendation: when the price line crosses above the moving average line, buy. When the price line crosses below the moving average line, sell.
There are 2 moving average (MA) charts are available: 10-day and 30-day. The 30-day MA is slower than 10-day MA and produces less false signals. Therefore it becomes more like a buy and hold in a sense.
The moving average levels are interpreted as support in a rising market, or resistance in a falling market.
Stochastic
General recommendation: %K line crosses up through %D, buy. Buy line (%K) crosses down through sell line (%D), sell. %K or %D levels above 80 and below 20 can be interpreted as overbought (too many buyers and not enough sellers) or oversold (too many sellers and not enough buyers), that is why when the Stochastic line crosses up through the 20th percentile it is a positive signal, and when it crosses down through the 80th percentile it is a negative signal.
The idea behind this indicator is the prices tend to close near their past highs in bull markets, and near their lows in bear markets. Transaction signals can be spotted when the stochastic oscillator crosses its moving average.
There are 2 stochastic charts available: fast and slow. Fast stochastic can give a lot of false signals, that is why it is wise to use it only as a warning, as an early signal.
MACD
General recommendation: beginning of a mountain, time to buy. Beginning of a valley is time to sell.
MACD, which stands for Moving Average Convergence / Divergence, is a technical analysis indicator created by Gerald Appel in the 1960s. It shows the difference between a fast and slow exponential moving average (EMA) of closing prices.
The signal line crossing is the usual trading rule. This is to buy when the MACD crosses up through the signal line, or sell when it crosses down through the signal line. The histogram shows when a crossing occurs. When the MACD line crosses through zero on the histogram it is said that the MACD line has crossed the signal line. The histogram can also help visualizing when the two lines are coming together. Both may still be rising, but coming together, so a falling histogram suggests a crossover may be approaching. A crossing of the MACD line up through zero is interpreted as bullish, or down through zero as bearish.
General Recommendation
On each chart we show verbal explanation of the chart (chart alert) to help player get familiar with the signals and their interpretation. Basic rules for chart alerts are:
- Buy - all charts moved to the "positive" area.
- Get Ready to Buy - some of charts moved to the "positive" area.
- Sell - all charts moved to the "negative" area.
- Get Ready to Sell - some of charts moved to the "negative" area.
- Hold - no indicator changed direction. If you have position, you would better keep it, there is no reason to sell.
- Stay Away - no indicator changed direction. However, technical indicators recommend that you should not have this position.
- On Deck - state is unknown: some indicators suggest buy, others suggest sell. So, just get ready to act, but do nothing for now.
In general, when all mentioned above charts are suggesting "buy" it is time to get in. When all of them are saying "sell" it is time to get out.
With all said here we believe that every intelligent investor uses his/her own strategy and always adjust general rules to better fit his/her level of risk tolerance, short/long term goals and personal attitude. We believe that this game is a great opportunity to build your own strategy without risking real money.
The more you play the game, the better investor you become!
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