Are you a spectator or a speculator in the financial market?

While the two market approaches look like the same, both differ according to strategy, profit objective, and point of view, among other factors. Speculators love to be on the sidelines, taking huge risks, especially when it comes to projecting future price movements, to lock in large profits. Conversely, spectators prepare to come off the sidelines, but only when the opportunity is too good to pass up. They are pretty much contented with whatever they have for months or years.

Let us expand on these two different concepts.

Speculators are mere observers. However, this trait makes them toy with several what-if scenarios in their minds continuously. A benign anarchist at heart, they profit from the stream of capitalistic enterprise but do not adhere to a specific vantage point. Speculators, known for being objective, discover even the lowest risk opportunities which spectators and the general public fail to notice.

They see every profitable opportunity in all news, good or bad, and more likely to sell short since they have no emotional attachment to an object of speculation. Speculators focus more on figures and in technical analysis, as well as balance sheets and earnings reports. They disregard their own personal interests or principles at the beginning of the market day, as they believe dogma and belief systems are the key to losing money.

These classic market traders turn over capital repeatedly to chase consistent returns and are less likely to partake in investment or other long-term commitments because they recognize the markets can and often will turn on a dime.

Spectators tend to focus more on central banks and economic policy. They look into interest rates, macro fund flows between countries and currencies, and estimated correlations between debt and equities. For them, sitting in cash is a valid strategy. However, they are confused about the right timing to pull the trigger. The perennial detachment aligns them to the next opportunities, even if it means inverting all positions.

If you notice, spectators lack participation. They attribute it to market manipulation, the Federal Reserve, greedy money managers, and high volume of trading algorithms. We often see them in online debates and forums, but won’t capitalize on their opinions. Instead, they concentrate on dogmatic exposure which matches their market and political views. The best ones gain without becoming a bona fide speculators.