The recent discussions about exchanges and trading strategies in Second Life has prompted me to explore a little bit more some of these ideas. At the first public class of the Investment Education Team, there was a discussion about price earnings ratios. It was noted that stocks in Second Life seem to trade with little correspondence to these ratios. With banks and exchanges paying as much as 44% interest per annum, it means that any stock with a Price Earnings ratio higher than three needs to be less riskier than the banks or exchanges, to justify such a ratio, and that just isn’t all that likely.

So, it may be useful to move from fundamental analysis to technical analysis of the stocks in Second Life. Three exchanges, SLCapex, ACE and VSTEX provide in a format that makes it easy to do some of this analysis. A fourth exchange, ISE provides some similar data, but in a different enough format so that I haven’t gone out and added it to my mix of data.

Specifically, using the data feeds they provide, you can build your own data store and ticker plant. I wrote a little bit about that here. Now that I have a good store of data, I can start analyzing some underlying trends.

I am looking at using this to expand on my trading strategies in Second Life. For more information on these strategies, you may want to look at my post about playing the spreads and my post about trading on news.

As I currently look at the data, I’m creating a primitive way of thinking about support and resistance levels. I’m sure that an expert at technical trading would shudder at the primitive analysis I’m doing, but all of the tools for trading in Second Life remain fairly primitive. Right now, I’m looking at support levels as a function of the lowest price traded over the past week, as well a certain number of standard deviations of price change from the current average. I’m looking at the number of times a price has changed, and current bids.

For highly active stocks, a couple jump out. BNT is one of the most active stocks. It has support at about .23 and resistance at about .30. Right now its bid ask spread is .23/2.9, right in the range of its band. It seems like buying BNT at .23 makes sense from a technical perspective.

Another very active stock is LCA. It trades in a range of .91 to 1.07 Currently, its bid ask spread is .91/.95 It has only fairly recently started trading, so there isn’t a lot of data available. Yet, .91 seems like a reasonable level to be buying.

YEP has a trading range of 2.11 to 2.39. Currently, its bid ask spread is 2.08/2.32 so its bid is below the expected range. There is no news on YEP, so that might be worth looking into.

Other interesting stocks to keep an eye on include BBX. They have a lot of activity, and trade in a range of 2.53 to 4.07 Right now, the bid ask spread is 2.80/2.98, well within the range.

SLCX is also very active. They trade in a very tight range of .26 to .29 Their current bid ask spread is .26/.27 Not a lot to play with there.

Rounding out the picture is POW. They are active with a range of 1.10 to 1.36 Currently, their bid/ask is 1.16/1.25 well within the range and without a lot of room to play.

Using this sort of information, I’ve been buying and selling Second Life stocks. It has been similar to trading based just on spread that I’ve talked about before, although it is paced a little bit more slowly. Overtime, I expect we will see more information and better tools for technical trading in Second Life.