Speculators

The word speculator has undeservingly bad reputation. A quick look in the dictionary reveals that speculator is

• someone who makes conjectures without knowing the facts;
• someone who risks losses for the possibility of considerable gains;
• someones who anticipates price move and intend to profit from it.

Everyone involved in the financial markets is a speculator in one form or another.

Technical analysts believe that it is possible to forecast future price moves by observing current price and volume dynamics. They speculate that certain patterns are good prognosticators of future price moves. They are not interested in the stocks themselves, but in the stock market participants.

Fundamental analysts are interested in the stocks themselves and their underlying business. They assume that sooner or later the market will come to its mind and price will catch up with fundamentals. They essentially speculate that they can forecast with precision future cash flows  and discount rates until eternity.

Needless to say no one has a crystal ball. There is no approach that has 100% success rate. The good news is that you don’t have to be right all the time in order to be consistently profitable. There are thousands different ways to make money in the financial markets and the core behind each method involves disciplined risk management. For some risk management involves proper diversification, for others it involves hedging and position sizing.