Monday, September 26, 2011

How To Win The Million Dollar Portfolio Challenge

Million Dollar Portfolio Challenge
So far we're still near the beginning of the CNBC Million Dollar Portfolio Challenge 2011. Even so, staying close to the top is extremely difficult with such fierce competition. My main portfolio is ranked 579th, and my profits so far have been better than 99.9% of the other portfolios competing in the game. The title, "How To Win The Million Dollar Portfolio Challenge" is not misleading. In the end, it comes down to luck in this no risk, all reward stock market simulation game. However, you need to know how to turn good luck into the most profits possible if you want a real chance at winning.

This competition only lasts 10 weeks. So that means beginners have almost the same chance of winning as investing professionals who trade stocks for a living. There are so many great investing strategies that have a high probability for success. However, these strategies are all but useless in a competition like this. The profits on most stock trading strategies are too low to beat those who trade with high risk and get lucky.

So the first tip you need to know is:
(1) Make high risk trades that have a higher potential gain.
This can be accomplished by trading the lowest priced stocks or funds. A small movement in these mean a high change in percentage. Only the luckiest players will guess the market's movement correctly every time, but you can increase your probability by following the next strategy.

The next tip you need to know is:
(2) Follow the trend
If you want to win, you will be making higher risk trades. So you need to stack as much probability of success as you can. Many stocks will follow the market, so if you can accurately predict the overall stock market's trend, then you will gain an advantage. There are a couple factors you can use to easily gauge the trend.

30 day simple moving average
First, you need to watch the moving average. A simple 30 day moving average will help you determine the general trend. If the ending price is above the 30 day moving average for more than 2 days, then the trend is generally bullish. If the ending price is below the 30 day moving average for more than 2 days, then the trend is generally bearish. When the price crosses the moving average and ends on the other side, then the trend may be changing directions. When this occurs, you should watch the direction of the price for a few days to confirm that the trend has actually changed.

Next, you need to watch support and resistance levels to predict the short-term trend. A support is where the price has fallen to and bounced off of a certain price level multiple times as shown below.
Stock Price Support

A resistance is where the price has risen to and bounced back from a certain price level multiple times as shown below.
Stock Price Resistance

Support and Resistance levels can often occur at the same price levels as shown below.


The moving average will often become a support level in a bullish trend, and a resistance level in a bearish trend. Use the moving average to determine the general direction of the market, and use support and resistance levels to predict short term movement within the the general trend.

Thanks for reading. In the next post, I'll provide more stock market tips for how to win the Million Dollar Portfolio Challenge 2011.

No comments:

Post a Comment