Forex Market Speculation

In the stock market, speculation involves taking a position in order to profit from a certain outcome. This is not concerned with the underlying fact to forecast or predict the future of any company beyond it’s short term price action.
Speculators in the stock market are pushed to purchasing certain stock with the sole purpose of selling it to someone else at a higher price.
This may look obvious at the first glance but it seems not to be so later on.
Well every businessman needs profit, right?

But the truth is, there’s big difference between speculators and investors. Speculators don’t care about the value of stock but only think price will move up or down as there are more speculators accumulating the stock.
On the other hand, investor look at the logical value of stock at the long run, and tries to eliminate certain factors that could affect the price based on the economy, industry and business.

Enough of this stories, but I believe you catch the jist?
Let’s check it out with the forex market.

One significant thing about the market is that most currency trading is based on market speculation. This implies to how traders react to intraday price movement.
To say it in more understandable terms, most trading volume comes from traders that buy and sell based on day to day price movements.
Speculators can bring about 88% to 92% of trading volume daily.
Let share with a little on how I use to gain most time from market speculation based on price movement.
First, trend is king, never trade against the trend. Remember?
In a consolidated market, price direction cannot be ascertained. Investors like you and I will be seated, watching out for a breakout.

But once there is a break out on the upside or downside, you will discover price moving higher or lower than expected.
In the case of our chart above, we saw breakout on the upside. Price even moved higher.

Why the up breakout?
The market speculation was greater on the upside. This is so because even while the price was consolidating, Buyers and Sellers were taking positions with the expectation that price will respect their call. Surprisingly, the sellers lose.
One can profit from this by;

1.  Waiting for a breakout to know which side leads the intraday price.

2.  Waiting for price to reach point of no return in (no reversal candle or pattern that is evident of changing) price movement. This is to avoid fake-outs.

We will see to that later.
One can easily measure a speculative market if liquidity is extremely high.
What’s Liquidity?
It is the amount of buying and selling volume happening at any given point in time.
If liquidity is high, it makes it easy for anyone to buy and sell currencies. Traders can easily detect market direction and join the trend.
As an investor in the forex market, you dare not eliminate the importance of liquidity because it determines how price can change over a given time period.
With little effect on price action, a huge trading volume could be achieved in a liquid market like the forex business. This also could depend on the currency pair, time and day of the trade.
You will discover which time is best for each currency pair and the best day to trade in order to expect a huge profit. Liquidity is high at such time and days.
Before we get to that, let’s take a look at different ways to trade the currency market.