stock market strategies

3 Powerful Stock Market Strategies – Investing, Speculation, and Trading

Nowadays, the term “investor” is loosely applied to anyone who buys securities in different markets. However, John Maynard Keynes used it more restrictively—he differentiated the words “investment” and “speculation.” We’ll tackle those important concepts later. We will also discuss 4 powerful stock market strategies you can use.

stock market strategies

But first, let’s look into what the famous investors and economists have in common in terms of their character traits.

Character Traits of Successful Market Participants

These are the character traits that successful investors have. You should have them too!

investor characteristics infographic


Whether you’re an investor, a speculator, or a trader, you should definitely have a critical mind. Be observant and try to analyze various sets of data. This way, you market decision will always be informed and effective.


Many of the most legendary people in history have gotten themselves criticized at one point or another. Most of those instances are because of their opposing views to popular opinion.

Let’s take Warren Buffett for an example. He said, “Be fearful when others are greedy, and be greedy when others are fearful.” Buffett definitely had some people spooked by this philosophy. Nonetheless, he has proven himself to be correct by consistently beating the market.

You have to be confident with your trading decisions in order for you to maintain a profitable strategy. Of course, remember that merely being confident would not be enough. Like Warren Buffett, you should back your confidence up with logical explanations and principle.

Related: Here Are The Things You Should Know About Trading Psychology


Some people say that you can’t be humble and confident at the same time. That’s awfully wrong.

Being confident does not necessarily mean that you’re right. Though your decision is logical and practically plausible, you can still commit mistakes. And when you do, that’s the time when you can show your humility. You have to know when to throw the towel.

Sir John Templeton said, “Only one thing is more important than learning from experience, and that is not learning from experience.” Meaning, you have to know when to not dare.


Of course, you can’t expect to be a millionaire without trying. You must exert the effort necessary to make investment decision.

If you plan to stay in the game, you got to have the guts to push forward constantly. And by that, we mean daily bouts with market monitoring, fundamental analyses, technical analyses, speculations, et cetera.

According to Christopher Browne, “Value investing requires more effort than brains, and a lot of patience. It is more grunt work than rocket science.”

See also: The Legends in the Financial World and What You can Learn from Them

Now that you know what you should have, let’s get into what you should do.


investing. fundamental analysis

“Investors” are people who are really game for the long haul. They hold assets much longer than any other kinds of market participants.

Investing requires you to hold your assets for a long time. You should try to choose a company that has desirable products or services. The company should also sport efficient production and delivery system, plus a sharp management team.

Once you find this kind of company, you must try to profit from its revenues and profits. Your main goal here is to purchase the greatest future earnings for the lowest price possible.

Let’s bring back Warren Buffett again. Back in 2010, he said, “You look to the asset itself to determine your decision to lay out some money now to get more money back later on.”

Buffett tells us that we should focus on what the company will produce in the future. We must not concentrate on what somebody else is willing to pay for the stock.

Fundamental Analysis

Investors utilize different techniques in picking a company, but all of them fall under fundamental analysis.

We got Benjamin Graham to thank for the development of fundamental analysis. The techniques incorporated in this analysis have not changed for over a century. In here, we want to focus on the metrics of companies.

Graham had a string of factors that helped him determine if a company’s stock is undervalued.

  • P/E of the stock less than the inverse of the yield on Aaa corporate bonds
  • P/E of the stock less than 40 percent of its average P/E over the preceding 5 years
  • Dividend yield greater than two-thirds of the Aaa Corporate Bond Yield
  • Price less than two-thirds of book value
  • Price less than two-thirds of net current assets
  • Debt-equity ratio has to be less than one
  • Current asset greater than twice current liabilities
  • Debt less than twice net current assets
  • Historical growth in EPS (over the last 10 years) greater than 7 percent
  • No more than two years of negative earnings over the previous decade

Warren Buffett managed to improve Graham’s methods. In 1982, he said, “Accounting numbers are the beginning, not the end, of business valuation.”

Buffett, in his stock market strategies, searches for a strong and competitive company, making it potentially profitable through the years. Usually, investors use the buy-and-hold strategy and other variations of it. He disregards political or economic backdrops. In a nutshell, he is a long-term investor whose “favorite holding period is forever.”

Intrinsic Value

Investors try to lessen risks by determining and buying only companies with low stock price and high “intrinsic value.”

A stock’s intrinsic value is a theoretical value that you obtain via fundamental analysis. You compare its value with competitors and the overall market. You do this along with diversification—buying across different types of companies, industries and markets.


bworld speculation speculative trading stock market strategies

Speculation, not necessarily opposed to “investing,” is the “purchase or sale of securities or commodities in expectations of profiting by fluctuation in their prices,” according to Phillip Carret.

Carret is the author of “The Art of Speculation” in 1930. He was also the founder of one of the first mutual funds in America.

Speculation combines the Grahamian fundamental analysis with the concepts from early tape readers. The goal is to spot general market trends.

See also: Complete Trend Trading Guide for Beginners

Back in the day, around 1960, many people thought that speculation is just another form of gambling. However, this popular public opinion met some criticisms from Milton Friedman. Friedman wrote “In Defense of Destabilizing Speculation” and argued that speculators usually have the benefit of information over others.

This advantage enables speculators to earn profits whenever other, less knowledgeable market participants lose. This suggests that speculation is the buying and selling of securities based on information.

“You’re putting your money where you think the rest of the market will be putting their money—before it happens,” according to Paul Mladjenovic.  Mladjenovic was certified financial planner who wrote the series “Stock Investing for Dummies.”

Jesse Lauriston Livermore

Jesse Lauriston Livermore was named the “most fabulous living US stock market trader” in 1940. Livermore improved his technique by buying and selling stocks in bucket shops. Bucket shops were unregulated businesses that are similar to today’s off-track betting parlors.

Livermore had the ability to spot and analyze patterns in stock movements. This ability, however, made him some sort of an unwelcome person in the shops.

Livermore poured his attention to stock prices and their changes to make a pattern. Observing these patterns enabled him to detect “pivot points,” which are now known as the levels of support and resistance.

These guided his buys and sells, and he bought stocks that were rebounding from their support level. Then, Livermore sold them whenever they neared their resistance levels.

Our guy knew that stocks’ movements follow a trend. However, he also knew that the movement could change direction quickly, depending on the overall market sentiment.

If you want to be as successful as Livermore, here are some of his other speculation rules:

  • Buy rising stocks and sell falling ones
  • Trade only when there’s an obvious trend—whether bullish or bearish
  • Never buy more of a stock that has fallen
  • Never meet a margin call—exit the trade
  • Go long when the stocks hit a new high
  • Go short when stocks hit a new low

Based on Livermore’s philosophy, the markets are never wrong. However, opinions can be wrong. So, let it be warning: no stock market strategies could give you profits ALL THE TIME. This entails playing dead for a while. Meaning, you should be content on staying in the sidelines until you spot a clear opportunity for a profit.

Technical Analysis

The techniques that Livermore used evolved to what is now known as technical analysis. Livermore’s pivot points extended to other price and volume patterns of price changes. These include head and shoulders patterns, moving averages, flags, pennants, and relative strength indicators.

Many followers of this approach argue that “fundamentalists” use outdated information. They believe fundamentalists study history and the market is no longer interested in the past fundamentals.

Speculators believe that patterns repeat themselves. This means that if we try to review such pattern movements, we can predict future prices. Along with this, we have to interpret patterns properly.

The Challenge

The speculators’ stock market strategies haves been challenged, too. In 1970, Eugene Fama proposed that securities markets are already extremely efficient. He was a professor of finance in the University of Chicago and a Nobel Prize winner. He published the article, “Efficient Capital Markets: A Review of Theory and Empirical Work” in the journal of France.

Fama said that neither fundamental nor technical analysis can help you achieve greater returns. This indicates that the returns of a fundamentalist and a speculator could not be greater than the return of a newcomer with a randomly picked portfolio.

Fama’s ideas became among the primary tenets of the Efficient Market Hypothesis (EMH). Even if the EMH received a lot of criticisms, Dr. Burton Malkiel defended it and said that the stock markets are “far more efficient and far less predictable than some academic papers would have us believe… [the behavior] of stock prices does not create a portfolio trading opportunity that enables investors to learn extraordinary risk-adjusted returns.”


bworld stock market strategies trading

Technological leaps, along with the appearance of online brokerage firms, have paved the way for this market strategy. Individuals can now avail low commission rates and utilize various tools and systems to follow and analyze the market.

Further, tech breakthroughs have been so constant that individuals and firms can now use artificial intelligence programs and complex algorithms to buy and sell enormous stock positions in a matter of seconds.

A “trader” is a person who buys and sells securities within a shorter period of time compared to investors. Often, traders hold a position for only a single day. A trader looks for price volatility, which gives him the chance of a quick profit. Then, he moves on to the next opportunity.

For comparison, speculators try to predict future trends, while the trader acts upon existing trends. Your main goal as trader is to make a small profit before the trade ends.

How Trading Works

Most of trading processes take place in various institutions with programmed systems. These systems analyze price trends and place orders. In other words, emotions play a very minor role in the buy-sell decisions. This is because the system automatically places trades when it reaches a predetermined criteria.

Further, gains can be extremely high. An academic study of high-frequency trading in 2016 showed that HFT firm’s fixed costs are inelastic. This means that firms that trade more often make more profits than those with fewer transactions. Trading returns range between 59.9 percent and 377 percent.

However, the impact of high-frequency trading is still controversial. In 2014, a report showed various instances of price manipulation and illegal trading methods.

Not only that, there were also concerns that automated trading can reduce market liquidity. You might also find criticisms about the high-frequency trading’s role in major market disruptions.

Day Trading

Day trading has become a widely popular market strategy in the stock market. In fact, a review showed that day trading continues to attract more and more market participants. That’s against the survey that showed 99 percent of day traders eventually lose money and quit.

Many investors become day traders because of the convincing efforts of day trading firms. This industry is unregulated, and it profits from the sale of instruction and automated trading software to their customers. Additionally, the software is similar to those that big traders use.

Day trading isn’t as easy as it sounds. According to Chad Miller, everyone perceives trading good, but it requires hard work.

“You can’t just turn on the computer and buy a stock and hope you make money,” Miller argues.

When you are a day trader, you generally have ten trades per day, looking for small profits per trade. You would also use the margin or the borrowed money from your broker. Also, margin traders who buy/sell a certain security four or more times a day in five days are called “pattern day traders.” They can access special margin rules while maintaining an equity balance of at least $25,000.

Read further: Day Trading Strategies for Beginners


When you are a day trader, you generally have ten trades per day, looking for small profits per trade. You would also use the margin or the borrowed money from your broker. Also, margin traders who buy/sell a certain security four or more times a day in five days are called “pattern day traders.” They can access special margin rules while maintaining an equity balance of at least $25,000.

Choosing Your Stock Market Strategies – Conclusion

Stock market strategies vary. They can also be easy for one but difficult for another. However, as we have pointed out in previous articles, you are your most important factor to consider. You have to think about yourself, such as the amount of risk you can tolerate. You should also learn more about different asset classes and which to choose.

If you want to learn new things and learn strategies about the market, BWorldpedia is the site you should visit! We provide profound and useful insights about the market and across a plethora of topics related to it. Also, register an account now with BWorld and start your investment journey.

3 Replies to “3 Powerful Stock Market Strategies – Investing, Speculation, and Trading”

Leave a Reply