Why traders lose money in market
As we have seen the huge growth in the stock market in last 3-4 years. The participation of new retails traders has also increased immensely during the Covid pandemic.
So the chances of losing money also get increase. And there are many different reasons how the retail traders or beginner lose money in stock market. The main reason is the Human Psychology regarding the stock market. Many Traders thinks of the stock market as Gamble rather than treating as a business. They want to double money quickly not by patience. While in every work patience is the key to success.
Here are some reasons why the traders lose money:
LACK OF PROPER RESEARCH ABOUT THE COMPANY:
This is the very first reason where 90% of traders loose the money when they start trading in the stock market in their beginning stage. They easily follow the tips they get from their neighbor, friends or from any financial expert, etc. And on the basis of their tips they just blindly invest in that particular stock without doing any research and at last they end up making a huge loss.
MAKING QUICK MONEY
This is the second biggest mistake that people make while investing in the stock market. People are always in a hurry to make money. They always want to become rich quickly.
They just want to make their capital double within a short span of time. But the beginners are not even ready to invest their time in researching the company’s profile. They just select the stock on the basis of any finance related channel recommendations. After that they invest a huge amount of money in that particular risky stock or some penny stocks and wish to double their capital within a month. And after a month their portfolio stands -30% to -40%.
HOLDING THE LOSE TRADE AND CUTTING THE PROFITABLE TRADE EARLY:
This is the basic mistakes which new starter makes in their early stages. This is because of fear of losing money in the stock market. There may be other reasons too, like In their past journey they have made huge amount of loss in a stock market, not having enough confidence on their executed trades because they might have invested that trade on others recommendation or any tips. To become a successful trader you have to follow proper Risk to Reward ratio. Without that you will always end up losing the money in the stock market. Because trading is all about research and probability. The main reason is they are not following proper risk management. They keep on taking the losing trade forward in the dream of making that trade profitable and not putting the proper stoploss. They cut the winning trade early without trailing the stoploss. Instead,
“Run the Winners And Cut The Losers”.
JUMPING INTO THE INTRADAY AND SHORT TERM TRADING :
Nowadays it is a trend that is followed by the beginner to directly jump into the intraday and short term trading without having success in the cash market. Because intraday trading is way riskier than the cash market. They participate because they feel that trading in the short term makes them rich quickly.
Generally, people think that getting two to three trades profitable makes them successful. But in reality it is not true because in intraday when you trade with more margin the one stoploss is enough to wipe out your whole account.
We can see that newbies nowadays directly start trading in the derivative market ends up losing the whole amount. And after that the revenge trading start where they think they can recover their losses but instead they lose all their capital.
BEING IMPATIENCE:
Today’s generation is not ready to give time to the stock market. They want to grow their capital as quick as possible. They do not know how to trail the stoploss and maximize the profit. Many day traders rush to book their profits or make trading decisions in a hurry which is one of the reasons why they makes losses in intraday trading. Many traders book profits before deciding their price targets or stoploss. Also being impatient and changing trading strategies frequently is one of the biggest mistakes that intraday traders make.
Sudden Overexposure to Market
None of your investor friends will tell you about their losses and bad investments. It’s sometimes a matter of pride. You might think that your friends or colleagues are an expert, but they are not.
BLINDLY FOLLOWING THE CROWD.
Imagine a scenario. Your neighbor bought a stock that increased its value by 40% in a few days. Then your colleague bought the same stock and the stock has now risen to around 60% appreciation from its initial value.
Everyone is talking about that stock and it’s making a lot of noise in the news. What will you do now? Will you invest in that stock too? Will you feel FOMO – fear of missing out?
This is a common scenario in the stock market, especially when a new hot IPO enters the market. If you blindly follow everyone, you are most likely to lose money. Everyone has different strategies for their investment. You just can’t know the real strategy of your neighbor or friend.
WE DON’T HAVE TO BE SMARTER THAN THE REST. WE HAVE TO BE MORE DISCIPLINED THAN THE REST.”
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