SpeculationWhy Speculate And Risk? Better To Invest And Earn!


  • Many traders who make use financial trading as an investment tool concentrate their operations in the very short terms, forgetting that not only they can speculate but also invest. The main difference between speculation and investment consists in the time factor, speculators capitalize on the “market noise”, namely on any very short-term movement, on the other hand investors rely on appreciation or depreciation of the asset.

    Not all traders are well suited to speculate with trading, because the stress caused by short times together with the emotional factor play a primary role in this style of trading, probably those who do not get satisfactory results, could change style choosing broader time periods and start to see the earnings they had expected.

     

    • The advantages of medium/long term

    -   A more relaxed and quiet approach 
    -   No need to check the broker on the accuracy or precision of operations, because on longtimes any inaccuracy or delay turn to be not relevant
    -   Fewer time consumption, therefore suitable for those who already have anotherworking activity
    -   Absence of complex strategies and associated research, study, back-testing andoptimization sessions
    -   More consistent results

     

    • Disadvantages of medium/long term

    -   Lack of the most exciting and thrilling aspect typical of short-term  
    -   Very long waiting times in which considerable patience is required 
    -   Very limited number of transactions
    -   In case trading is the primary activity, larger capitals are needed.

     

    • Organizational measures

    The transition from speculator to investor involves a series of operational and organizational measures. By trading on longer time periods, our analysis is based not only on signals deriving from technical analysis, i.e. by supports or resistances breakouts or particular indicators' values, but it focuses also and especially on fundamental analysis, that is, those external economic and financial-political elements that influence price trend. If for instance the trader operates on currencies or indices he must necessarily be informed not only about market movers the day, but those able to make the asset change direction such as news on interest rates, GDP, inflation, consumer confidence etc .. On the other hand if you decide to invest in stocks, you must have knowledge about company fundamentals that is the state of its health by reading financial statements or by following the results of the quarterlies, essentially you have to interpret the state of its health and its growth.

    From an organizational perspective the steps necessary to change operation type that is to pass from a short term trading to a medium term trading style are: 

      • Follow the market movers
      • Make a fundamental analysis
      • Technical analysis of the security or currency  

     

    Our investment decisions must be based on these three fundamental aspects, our operations go from a trading of sentiment to a trading of future expectations. From a purely operational point of view, following the market movers and performing an analysis of fundamental type helps us understand the security or currency direction whereas  the entry timing is decided through the graphical analysis of the asset.

Interviews

  • the Analyst's answer

    Jean Grossett - Financial analyst

    The main problem encountered in switching from a short-term type to a medium-term type of operation is a question of competences. Knowing how to perform a macroeconomic analysis, or analyzing a stock is not simple, but a useful advice we can give to those who follow us, is to read the numerous reports issued by investment banks. This type of analysis can be downloaded from their websites and are a valid support for our trading decisions. One last tip, but not less important is to study a lot, it may seem paradoxical, but those who approach trading despite knowing they are investing their money do not devote enough time to enrich their skills.

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