There is no doubt that trading has become a profession for those who have no profession, as everyone has become an expert in market study and technical analysis. The discussion on this topic may take a long time, but we will only try to address speculation, which takes up the lion's share of the discussion space on social media. The field of stock speculation is shrouded in a lot of mystery, and the most dangerous thing is that it has become a front for scams targeting novice traders. This prompted the blog team to prepare this simple article, which will help you familiarize yourself with the basics of speculation on the stock exchange.
Stock market speculation: a comprehensive explanation with the best successful strategies
The site team explained speculation in the stock market from scratch to help beginners learn the secrets of speculation in the stock market and know the best successful strategies to ensure profits.
What is stock speculation? Simple explanation for beginners
Speculation is the process of buying stocks with the expectation that their value will rise in the short term, and then selling them for a quick profit by taking advantage of the price difference. The profit margin during speculation is often small, but investors can make good returns by multiplying the size of deals using leverage. Some of the beginners may wonder is speculation profitable? In short, speculation in stocks is a profitable investment, but it is risky. The speculator is a trader who does not care about the real market value of assets, but rather his only concern is chasing price movements and snatching profitable deals during short-term fluctuations. For example, most investors in the stock market are not interested in monitoring the market movement because their goal is to hedge and benefit from the distribution of annual profits, unlike speculators who follow the market and indices on a daily basis in search of opportunities.
The most important steps and strategies for success when speculating in stocks
Now we will discuss the most important steps that must be taken to succeed when speculating in the stock market, which will help you make the difference during your first months of trading.
Full time
Many beginners think that the speculative business model is easy to reap profits in the stock market, and this thinking pattern is the main reason for their disastrous results. Success as a trader requires full time, so you should start your day early in the morning reading the latest economic news, market updates and reviewing the previous day's notes. For example, you should not start trading until you investigate the latest acquisition deals, mergers, or any dividend distribution process, as all of these factors affect stock prices.
Investing in liquid stocks
Success in speculation requires trading in liquid stocks with large capitals, while avoiding medium and small ones. This ensures the availability of deep liquidity over time because most investors tend to bet and invest in large companies, and thus the price fluctuation is ideal for speculators. Also, it is necessary to check the amount of liquidity according to the different price levels. Most of the highly liquid stocks are at a lower price level and decrease when a certain price point is reached. Understanding these price fluctuations allows entering into profitable deals faster, and ensures that the trading session ends with a good profit margin.
Move with the direction of the market
Moving with the market is always beneficial and profitable when speculating, and the controlling factor remains the ability to ride the wave of promising stocks during the session. For example, the news related to the stock and the field of operation of the parent company must be followed on a daily basis, as any indicators that appear will directly affect the price movement significantly. Also, remember that you are speculating, not investing, so any favorable opportunity should be seized as soon as possible. This step also applies to speculation in the foreign exchange market, which opens in Japan in the east and closes in the American Stock Exchange in the west, which gives a margin to achieve good returns. If you want to invest in the foreign exchange market, you can browse this guide about the best reliable and licensed forex trading companies.
Learn technical analysis
I would like to remind you that technical analysis is an art, not a science, so it is difficult to find a recipe or a business plan that works for all stocks. This does not preclude the existence of a common rule for technical analysis, which is to study the stock price archive and compare it with trading volumes. Analyzing this data will enable you to understand the nature of the stock's volatility, and will also provide clear indications of the extent of market whales' control over it. It is true to have a chart that helps predict future price trends, but there are more external factors affecting the trend than the forecasts of the chart tools. Personally, I recommend using TradingView for technical analysis because it is professional and has advanced tools compared to other competing tools.
Obligation to stop loss
Speculation is based on taking advantage of price differences and making small profits faster, so you must avoid losing by a large margin. Any trader who does not use Stop Loss orders is amateurish or reckless, because activating stop-loss orders is one of the axioms when trading in all financial markets. For information, the most important factor controlling the speed of executing stop-loss orders is the credibility of the trading platform, especially since some trading companies manipulate charts and orders. In general, non-compliance with stop-loss orders is one of the most common mistakes when investing in the stock market, so it must be activated before the start of the trading session. Determine for yourself a specific profit area, and thus control the level of price fluctuation that is acceptable and appropriate for your adopted strategy.
Top questions about stock speculation for beginners
This paragraph is dedicated to answering the most important questions about the technical aspects of stock speculation, which we will answer briefly.
How do you choose the right stock for speculation?
Speculative stocks are characterized by their low value because they do not have indicators of strength or represent a sustainable business model, so they derive their strength only from speculators' hope for an increase in their value in the future. Generally, you can choose the right stock for speculation or short-term investment by following these steps:
- Invest only in liquid stocks.
- Stay away from volatile stocks.
- Trade stocks with good correlation.
What is the best time to speculate in stocks?
The best time to speculate in the stock market is an hour after the market opens, so you should avoid opening deals at 10 am. Also, all deals must be closed an hour or two before the end of the daily trading session, because price movements and indicators change dramatically before the market closes.
What are the best US stocks to speculate on?
Statistics indicate that the American stock exchange is the largest in the world in terms of traded capital and the number of companies listed on the stock exchange, and therefore it is considered the first destination for emerging and promising companies to raise funds. This provides short-term investors with good profit opportunities, so we have limited a list of the best American stocks for speculation, which are characterized by intense trading.
- Materion Corp (MTRN)
- Magenta (MGNI)
- Lithium Americas (LAC)
- Sunrun (RUN)
- Murphy USA (MUSA)
- Allegro MicroSystems (ALGM)
- iCAD
- Stem (STEM)
What are the best Saudi stocks for speculation?
The Saudi Stock Exchange is small and backward in terms of laws compared to its American counterpart, so it is not attractive to emerging companies that are suitable for speculators. This given is fixed until it changes, God willing, with the completion of the 2030 economic vision, but there are opportunities to achieve some good returns despite all circumstances. The ideal stocks for speculation in the Saudi market are the leading stocks, which represent the major companies that own large capital and control the vital economic fields. The leading stocks are ideal for speculation because they lead the market during the rise or fall. Therefore, the best Saudi stocks for speculation can be summarized in the following list:
- Aramco
- Saudi National Shipping Company (Bahri)
- Al Rajhi Company (RJHI)
- SABIC
- Saudi Telecom Company (STC)
Is speculation in the stock market permissible or forbidden?
Speculation in the stock exchange is permissible because it is not gambling according to the legal classification. The decision to invest or not is not taken according to desire, but based on studying the stock performance archive and the latest indicators. The only warning is that speculation in the stock exchange is a high-profit and risky investment at the same time, so the feasibility and appropriate timing of entering the market must be carefully studied.
Conclusion:
It is known that speculation in the stock market is financially high-risk and mentally uncomfortable, so the most difficult task facing traders is to maintain vigilance and follow the market. Some may sing about activating stop-loss or buy orders automatically, but it is not enough to face the algorithms of advanced trading companies and the problems associated with weak Internet throughput. Also, the profit requirements from speculation are suitable only for large traders and investment funds, as achieving good results requires entering the market with large capital. According to my long experience, I see speculation in stocks as a good way to gauge the pulse of the market and achieve small gains, but it is not a successful investment in the long term. Also, to educate yourself, we invite you to read this important article about the most expensive and strongest currencies in the world, which will show you that the appreciation of the currency is evidence of the weakness of the economy and not its strength as expected. Now it is your turn to contribute to the enlightenment of traders by sharing the article, and we are ready to answer all your questions in the comments section below.