Speculation vs investing

Question

Greetings Anna, I am just getting into trading (although I have yet to make my first trade), and I just read your book on VPA. Thank you for sharing all of your knowledge. I really enjoyed the book. Before I begin to trade (with confidence), I feel that I need to have an area of focus or a trading strategy. So, my questions to you are: · 1.) What do you most typically trade? · 2.) What is the average time that you are in a position with these trades? · 3.) What is the best suited market or instrument for using VPA for intraday and short term trading? I sincerely appreciate whatever advice you can give. Thanks and kind regards,

Answer

Hi – many thanks for your email and an apology for the delay in responding. This has been due to personal circumstances which have prevented me from working for the past couple of months. Also many, many thanks for buying my Volume Price Analysis book and delighted to learn you are finding it so useful. With regard to your questions, these are ones I’m often asked and whilst they appear to require a simple answer, in fact the answer is multi faceted and raises many issues concerned with trading. Indeed, perhaps this may the place to start by attempting to define the difference between trading (or speculation) and investing. Whilst there is no clear distinction, as a rule of thumb speculation/trading is generally considered short term, ie intra day or a few days at most, whereas investing is seen as much longer term. In addition in trading we are simply looking to profit from both sides of the market (long & short) with no interest in the instrument itself. Investors, on the other hand, will tend to be primarily focused to the long side and be looking to hold for a period of time, and in addition will tend to have a deeper interest in the instrument they are invested in. The reason I have spent some time outlining the above, before answering your specific questions, is that in my own trading and investing funds are constantly swept from the speculative side of the equation and moved across into the investment side for a longer term hold. As to the instruments I (and my husband David) typically trade these would be for speculative positions in spot forex and in futures. As far as the futures are concerned here we tend to focus on the indices and commodities, and in fact index trading is where we began our own trading careers, as you will know from reading the book. Moving to question 2 and how long trades are held. For speculative these could be intra day or a few days, and to give you some examples, a spot forex position may only last an hour or so, whilst a futures position would probably last a few hours to a few days. With regard to the investment side we have been heavily invested in stocks since 2009 when we re-entered purely based on a VPA analysis of the market at the time. Like everyone else we are currently watching stocks particularly closely given that some many indices are either in new high ground or preparing to do so, but we have yet to see any strong signals of a major selling climax. When this occurs, and VPA will tell us, we will take the appropriate decisions. As to your third question with regard to which market is best suited for intra day or short term trading using VPA, the short answer is any as long as it is liquid and reports volume (actual or tick). This would include spot forex, futures, stocks and ETFs. Finally, just to touch on your own trading strategy, this will depend on many factors, not least the time you have available, where you are in the world, your trading capital and your attitude to risk. As a broad brush spot forex requires a relatively small amount of start up capital as it is heavily leveraged whilst futures and stocks will require substantially more to get going, and in addition require specialist trading accounts. This is not to say that forex is the best approach, but simply a statement of fact. Indeed, in the futures market increasingly the CME (and other exchanges) are introducing mini and micro lots which are now equivalent to very small contract sizes in other markets, so these are well worth investigating. I hope the above helps and thank you once again for taking the time and trouble to write to me and for your kind comments. Kind regards – Anna

About Anna 1040 Articles

Hi – my name is Anna Coulling and I am a full time currency, commodities and equities trader. I have been involved in both trading and investing for over fifteen years and have traded many different financial instruments, from options and futures to stocks and commodities. I write and publish articles ( mostly for free ) for UK and international publications on a wide variety of financial issues, and in particular I enjoy helping others learn how to invest and trade.

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