What is speculative trading?

To make decisions in speculative trading tactics, fundamental and technical analysis can be applied, as well as their synthesis. In practice, technical analysis is often the main type of analysis. Speculative tactics or trading implies waiting and choosing the most favorable moment for opening a position, opening a position followed by closing a position with either profit or loss. What is speculative trading?

The main features of the speculative tactics are:

  • Opening of both long and short positions, which allows you to profit from both rising and falling stock prices;
  • Positions can be opened for an amount exceeding equity capital through the use of credit resources;
  • Positions may be closed at a loss;
  • Frequency of transactions may vary from one transaction per minute to one transaction per month; 
  • Stop orders and money management techniques are widely used in speculative trading tactics. This book focuses mainly on this method of trading.

Trading Styles

Depending on the style or nature of trading, it is divided into impulse trading, inertial trading, rebound trading, scalping (market making), swing trading, and position trading. Most of these styles are based on technical analysis.

Impulse Trading

This trading style is based mostly on the use of news in trading. It more often uses “empirical” trading strategies, less often strategies based on technical analysis. If you want to engage in impulse trading, you need to be able to anticipate market movements based on the news. The duration of transactions in this case can be from 2 minutes to several hours.

Inertial trading

This style of trading involves trading in the direction of a strong (major) trend. A position is opened in the direction of the prevailing price trend and held until there are no signs of this trend ending. In order to carry out such trading, you need to have a very fine feeling of the market, to be fully “immersed” in it. The deal may last from several hours to several days or weeks.

Trade on the bounce

This style of trading is based on a pattern of price rebound after a quick drop or rise. For example, the price of a stock fell very quickly by 2-3% – often after such a fall, the price rebounds upward by 0.5%-1%. Or the price of a stock rose sharply by 2-4%, after which it usually bounces down by 0.5-1%. This trade requires diligence as well as fearlessness, because you have to sell on the rise, and buy on the fall. The operation period is usually very short, because bounces last only a few minutes to a few hours.

Scalping (market-making)

This trading style is based on spread trading. The trader places two-way quotes, buys at Bid and sells at Ask price taking the difference for himself. This is a very subtle trade. Scalping requires not only excellent knowledge of one’s business, virtuoso mastery of technique, but also a certain temperament.

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