Stock Chart Simulator: Would You Make A Good Day-Trader?

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Have you ever daydreamed about becoming a daytrader? Sitting at home in your pajamas, making some clicks here and there, and making money out of nothing. Much of daytrading is based on technical analysis, of which Wikipedia says:

Technical analysis is a financial markets technique that claims the ability to forecast the future direction of security prices through the study of past market data, primarily price and volume.

Basically, you try to find patterns in the stock chart, and time your buys and sells accordingly. Doesn’t sound that hard, right?

I just stumbled upon a really cool simulator called ChartGame that tests your ability to do so using old charts (via Bogleheads). Every day, you can either buy or sell your position. Your goal is to at least beat a buy-and-hold investor in the same stock. For those that are familiar, you can even plot things like RSI, Bollinger Bands, and MACD (moving averages). Try it!

Don’t get too excited though if you win a few times, though. Given the parameters, a blindfolded, drunk monkey should beat buy-and-hold half the time. Remember, this is even before taking into account transactional costs like commissions, bid-ask spread, or taxes! See if you can win, say… 8 out of 10 times or better.

Although you may not believe me, I actually used to want to program this exact type of simulator when I was first learning about investing. People often think they can see patterns, but this game gives you a taste of reality. I’ll be honest – I was horrible at it.

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  1. Technical analysis is pure quackery.

  2. This game is a good start, but volume needs to be considered when buying stocks. The two main components are price and volume. If you put a little time into it you can really improve your skill on what a good stock is.

  3. Why has the blog turned into a huge advertising engine? This used to be one of the most valuable blogs out there. Now, all we get is plugs for one product after another.

  4. When it comes to daytrading, you are missing that if you are smart, being right 30% of the time is all it takes. Using stops means that your downside risks are small.

  5. Does anyone know of any other investing games like this? When I was a kid we had a DOS-based stock game that would toss out things like “OPEC raises oil prices” and “USSR warships massing” and you’d have to react. It was fun. Wish I remembered the name or knew of something similar available today.

  6. This is really fun game! Thanks. My first try I was up 12.56% compared to Buy and Hold being up 14.62%. I even thought I was being cautious.

  7. Hey John,

    If you have beef with Jonathan plugging things he’s tried and feels readers might be interested in using, why not send him a personal email. Why must we read your negativity towards the blog.

    I don’t consider his plugs and possibly making some income from the plugs as diminishing to the blogs credibility.

    That being said, I hope he plugs only when he genuienly uses products or websites, and is not suckered by business contacting him to use these sites and products for money if mentions them in his blog.

  8. I actually did pretty well. I was up 30%.

    Of course buy and hold was up 200%

  9. Jonathan, I don’t agree that a dumb monkey should be able to beat the beat the buy-and-hold strategy half of the time. Don’t stocks tend to be profitable over time, meaning that any day out of the market is lowering your chances of beating the market (because of both lost dividends and share growth)? If the drunk monkey is out of the market for 25% of the time, I would venture to guess that his return is likely going to be 75% of the buy and hold strategy on average. Thus, the drunk monkey’s average would be less than the buy and hold strategy.

  10. “Now, all we get is plugs for one product after another.”

    John – I have never spoke to the author of this site, and never even heard about it before last night. I most definitely never got any money for this post. Where would it even make any money?

    I only write about products that I think are fun, useful, and/or profitable. I thought this was fun (and might save you some money in trading). I’m glad at least a few others agreed… 😛

    “When it comes to daytrading, you are missing that if you are smart, being right 30% of the time is all it takes. Using stops means that your downside risks are small.”

    I’d like to see some proof of this. Using stops also limits your upside profit on dips and bounces.

  11. Johnathan,

    What I am writing here is not particularly related to this very post about day-trading. I just want to remind you that few months ago, we had a discussion about how rice price is going up like crazy. I was the one speaking out saying that none of these are true functions of market, instead, it is very much manipulation by some forces (traders? exporting countries?) At the time, the majority of the readers dismissed my argument and saying that it has to be supply and demand and the world food supply is being squeezed by bio-fule needs.

    I just happened to visit a food distribution company that wholesale rice and other food products to big ethic grocery chains such as Rach99 in California. They told me that after the hype of that price inflation, the common price of rice is dropping like fly right now. In fact, they lost so much money because they purchased a lot of Thai rice for higher price and now they must sell them at a lower price because rice packages don’t last very long. Thailand and India do produce 3 or more round of harvest each year. If you don’t get rid of your last corp, the new production come in will make your existing inventory totally worthless.

    Oil price is somewhat similar in that respect.

    I really think we should bring up this discussion again since retrospective view is always more accurate than the opinion of the moment.

  12. Wow, this is a good simulator. I actually did pretty well but I’d probably won’t daytrade in reality.

    @ John – I’m sure Jonathan (as do most people) has a pretty busy life and sometimes he inserts these ‘plugs’ when he doesn’t have the time for a quality post.

  13. Technical analysis is just a belief. So is fundamental analysis. Neither one helps you predict the future. Both are a delusions.

  14. Technical analysis is just a belief. So is fundamental analysis. Neither one helps you predict the future. Both are a delusions.

    If technical analysis works than why can’t you use it to predict lottery numbers? Just make charts of the winning lottery numbers that were picked in the last few weeks and than based on that the chart should indicate what next weeks’ numbers will be. Do you believe that?

  15. I do short term trading trading and this program is missing quite a few things. Most importantly, it’s missing the basic market sentiment of the day. You can have the best looking technical chart in the world, and a sell off in the S&P futures will kill you in no time flat.

    Second, a true daytrader would be able to sell out during the day. I realize it’s a cool simulation but it’s this is more like flipping a coin since we can’t figure out whats happening in the broader market or base our trades off of momentum moves. Big Mo is a daytraders best friend!

  16. JJG – I think it is commonly accepted that lottery balls are random. However, imagine that lottery numbers were picked humans who were told to say 6 “random” numbers, instead of a ping-pong ball.

    Some people think that because stock trades are done by humans, there are psychological barriers and reactions. Therefore, some sort of predictable behavior may exist.

  17. says

    It would be nice if they charged you $10 a trade and taxed you on all of your profits. Should be fun to play around with atleast.

    Have you ever daydreamed about becoming a daytrader?

    I’d say 90% of us have but is it reasonable to go and do it? For most of us it’s not

  18. I work for a trading firm that trades ONLY on technicals. Technical analysis works. Not for the general public though. The general public doesn’t have the discipline necessary to trade short term.

    “Some people think that because stock trades are done by humans, there are psychological barriers and reactions. Therefore, some sort of predictable behavior may exist.”

    Those some people are 100% correct. Fear and greed rule the markets. If you’ve ever been on the trading floor you could see it for yourself. Why do some people make money and some people lose money with the same chart and the same trading system? Read the first part of “Way of the Turtle” by C.Faith. Excellent example.

  19. Well, it would be hard for me to imagine I would do any worse at the game than I have with real money in the stock market. My investment accounts look more like my grandparents’ every day (FDIC insured) !

  20. I think it’s a pretty cool simulator, but like what Matt was talking about it is missing a lot of information that actual daytraders use.

    You need to understand things like the direction of the overall market, the direction of the stock’s sector, and a load of other information.

    It also only allows you to buy once and once you have a position you can only sell it. This is also very unrealistic and doesn’t allow for many strategies. For example, if you dollar cost average into a stock while it is heading down, and then sell on the way back up you can do quite well.

    I was able to pretty consistently outperform the buy and hold by buying on the dips and selling when it popped back up. The difference wasn’t by much though and if the stock was down big I was down too.

  21. I know some hedge fund managers who do just that following the pattern 24 X 7, in fact, they have a dozen of tech analysts following the pattern around the clock for them. Yes, they win sometimes, but also they lose big time sometimes, many times. And they are top notch professionals, who clearly know what they are doing, plus they backed up by the capital which for the most part is not their own.

    Good books to read about this roller coaster life is Market Wizards and New Market Wizards by Jack Schwager.

    One time I was totally into trading. I even called Jack Schwager after I read his books and he gave me phone numbers of some traders he profiled in those books.

    I’ve got in touch with some of them. From that experience, one thing emerged clearly. I don’t need any day trading in my life. First, you need some serious capital to sustain losses and hold onto your positions and even if you have nerves of steel to hold on your positions while you are down, it is just not the way I want to spend my day, every day.

    I would rather enjoy my day, read, learn new things, fill my day with different experiences.

    However, if you are young and want to trade, try to get a job in one of trading shops, even an internship. That is a safe way to get the trading bug out of your system for good. Don’t think you can trade retail on your own. Just talk to brokers. I never met a broker who is day trading, they know better.

  22. definitely a teasing software. its like blackjack, the more you put the more you have chances.

  23. I have experienced triple digit returns using technical analysis for the last 3 years. This year I am only up 1%. I have not traded much, I have been on the sidelines most of the year. I am waiting for the charts to repair themselves.

  24. dannygutters says

    Benjamin Graham is weaping.

  25. A very senior coworker of mine who is a programmer, is creating his own models for ForEx and is day trading in that market. He’s been doing very very well. So much so that his returns are supposedly going to be higher than his salary this year. Technical analysis works if you are disciplined and have an idea of what you are dealing with.

  26. TA is great in this type of market, but you do need to pay attention to the news. This is a news driven market. So a chart can look great, but if the job reports are poor, then the market can quckly turn against you.

  27. Day trading is gambling. Don’t let anyone tell you otherwise. Just because somebody is making money doesn’t mean anything. First of all how do you know they are really making money? Have you seen their bank account statement or brokerage statement? Secondly even if they are making money it’s really just luck. Soon their luck will run out. In the real world that’s how things actually work.

  28. That site can be misleading. The market has been horrible lately. For the past two years or so. Of course if we look at charts from 2002 to 2005 its going to look good.

    Most stocks were going up. Now days if you buy and hold something like WM (Washington Mutual) or BSC (Bear Sterns) you’d end up with almost nothing.

    But that site does show that, in a good bull market. Buy and hold is hard to beat (using my trading strategy).

  29. The question: “Have you ever daydreamed about becoming a daytrader? Sitting at home in your pajamas, making some clicks here and there, and making money out of nothing”

    The answer: No, not really.

  30. auntie_green says

    ghost, the key word is “suppposedly”.

  31. I actually do think that people CAN outperform the market trading actively in the markets. The problem is that for most people, buy and hold low cost index funds is the perfect way to invest.

    If you truly want to be a swing trader, this simulator lacks the ability to trail stops or enter positions at predetermined prices. In other words just because the creators of this simulator have made active trading seems like heads/ your stock goes up, tail your stock goes down doesn’t mean active trading is that way.

    In addition to that one couldn’t sell short the underlying. If you are going to actively trade the stock, then you should have the ability to sell short, shouldn’t you?

    Last but not least, which active trader in their right minds would enter a position with 100% of his/her portfolio? Active traders also tend to diversify to at least 5-10 positions at a time or sit in cash.

  32. Thanks for the info but I will never use this since I know how I would do. Investing is not for me, saving and budgeting is all I know.

  33. Whew! That was fun. You need nerves of steel to do that with real money though. I can see how someone really can make money with this, but oh the stress. Do day traders live past 30?

  34. Jonathan,

    I enjoy your blog. Thank for making the time to do it.

    As for this “plug”, and just like any of your other posts on other subjects, some topics will be of more interest to some than others. All of your posts are going to be enjoyed by one group of people or another.

    As for this simulator, while it has its obvious drawbacks, and while it does not simulate day trading well, I have enjoyed playing with it. Thank you for sharing it.

    It is always amusing to me, and with some amazement, when I listen to people who are totally ignorant about something, but who are so adamant in their beliefs. You know what they say, “You dont know what you dont know”.

    Your readers will be surprised at the large number of people who survive (very affluently) off technical analysis. Just as with running a business, that does not mean anyone can be successful at it though.

    Thanks again.

  35. Cool game! Here’s my result:
    You have
    $13,195.04 (+31.95%)
    in cash with 160 days held

    Buy and hold would be
    $8,217.21 (-17.82%)
    in cash with 251 days held

    I didn’t trade everyday and I didn’t use the charts at all. I sold for a profit when I could and waited for the stock to fall before I bought it again. The stock was AMGN, and it seemed to break south of $60 and north of $60 several times. I used $60 as a bench mark and bought $2-4 below $60 and sold $2-4 above $ 60.

  36. There are a few flaws with this game. One hugely obvious one is that you can’t short sell. Another not so obvious one is that the easiest way to beat the game is by selectively picking stocks that are obviously going down and just let the buy and hold guy playing against you have at it while you don’t participate. For all of the bullish ones, just join in or skip that chart altogether. Another flaw is that there don’t seem to be any companies on there that go out of business and very few that don’t pay dividends. I don’t think the stock selection is totally random. If you are a daytrader, a huge tool you need to use is patience, which is just not doing anything if the stock isn’t ready for a move. Why in the world would you sell a bullish stock that could get more bullish? Whether you like to admit it or not, your own portfolio is not truly “buy and hold.” The stocks on indexes do change out occasionally. They select the best performing companies and add them. Sometimes, they take companies off and replace them with different companies. It is still trading, just on a very long timeframe.

  37. this game is great. I can consistently beat buy and hold. I could do even better if there were moving averages. Buy the support, sell the resistance baby!

  38. although.. the game is frustrating because I NEED MOVING AVERAGES!!!!!! argh.

  39. I have never dreamed about being a day trader. I had friends who were really bad at it and were let go. I have, however, had nightmares about trying to be a day trader.

  40. If you like this kind of thing try this site

    It is not a web page but an application that lets you trade historical stocks.

  41. i’ve tested 3 charts. i was successful every time. the simulator has one major flaw. you cannot place pending order or take profit or stop loss orders.

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