Speculation

Today we will discuss about what is speculation. I will tell a scene. A person is tossing a coin five times, all the five times he got head, now he believe that on sixth time he will get tail only because five times he got head. Can you see any logic in his belief. Absolutely No,This is the same thing happening in stock market these days. Many of these guys believe that if a  stock has been going high for one month it will continue its rally to more highs in the coming month because it has been making highs last month.

Just see the above example of a stock of Voltas. It has been going high for last week, so can i  think that it will go on making high in the coming week? Or it will come back to a lower level because it has touched a maximum high? If you believe any of these above stated arguments then that's called pure speculation. Speculation is not supported by any facts or figures. Its simply a feeling of somebody that something will happen only because something has been happening, both of the incidents even may not be having any like between, when you hear about speculation just remember about the coin tossing. This is the principle used by the most of the stock traders in the world, the one and only speculation. I can give you many examples but its in understanding the concept. Speculation in stock market is simply thinking that the stock will go up or down only because it has been going up or down or vice versa.

           People even use other mans money(leverage/loan) for their fantasy of speculation. At last what will remain is not huge profit but is complete or major loss of their principle capital. Then they go on to die or broke and complain that stock market is a shit and you cant never make wealth from it. You take all the major crashes, it only affects traders never investors. So the victim of stock market is mainly traders or speculators but not the investors who never care about the market cycles.