To avoid both of these extremes, investors have to understand the typical lies they tell themselves. Here are three of the biggest:. So waiting for the perception of safety is just a way to end up paying higher prices, and indeed it is often merely a perception of safety that investors are paying for.
What drives this behavior: Fear is the guiding emotion, but psychologists call this more specific behavior "myopic loss aversion. This excuse is used by would-be buyers as they wait for the stock to drop. But as the data from Putnam Investments show, investors never know which way stocks will move on any given day, especially in the short term. A stock or market could just as easily rise as fall next week. What drives this behavior: It could be fear or greed.
This excuse is used by investors who need excitement from their investments, like action in a casino. But smart investing is actually boring.
The best investors sit on their stocks for years and years, letting them compound gains. Investing is not a quick-hit game, usually. That desire may be fueled by the misguided notion that successful investors are trading every day to earn big gains. While some traders do successfully do this, even they are ruthlessly and rationally focused on the outcome. The main driver of success, again, is the discipline to stay invested. This is where your Trading Plan comes in handy.
Just stick to your Trading Plan and leave emotions out of your trades. Some people start trading in the stock market with unrealistic expectation on returns from Stock Market within a very short time. They expect to make huge profit from the day one and usually end up losing their money in the market. You should always be clear from the day one that making money in stock market requires same qualities as required in other aspects of life like hard work, intelligence, patience etc.
New traders are often guilty of not doing their homework or not conducting adequate research before initiating a trade. Doing homework is critical because beginner traders do not have the knowledge of seasonal trends, timing of data releases, and trading patterns that experienced traders possess.
For a new trader, the urgency to put on a trade often overwhelms the need for undertaking some research, but this may ultimately result in an expensive lesson.
Trading can be a profitable endeavor, as long as the trading mistakes mentioned above can be avoided. While traders of all stripes are guilty of these mistakes from time to time, beginner traders should be especially wary of making them, as their capacity and capability to bounce back from a severe trading setback is likely to be much more restricted than with experienced traders. Skip to content [email protected] March 9, September 3, profitmart.
Chasing Performance : Many investors select asset classes, strategies, managers, and funds based on recent strong performance. Lack of Trading Plan : Not having a trading plan or sticking to one is a common mistake most traders make. Beginner traders may be likely to have a trading plan in place before they commence trading, but are more likely to abandon it than seasoned traders if things are not going their way 3.
If only they would have held these stocks for a couple of years, they could have got good returns. Here, the lack of patience misfires on their intelligence of choosing a good stock. This is the sixth and most dangerous reason why people lose money in stock market. Imagine a scenario. 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. After researching the company properly, if you are satisfied, then only invest in that stock. In addition, to the above reasons of why most people lose money in the stock market, another big factor is non-diversification while investing in stocks. Most of these people are so overly confident about their stocks that they think it is logical to put the entire stake in just one company.
Remember, diversifying your portfolio with multiple stocks can mitigate the risk. True, it might reduce the profits; but it will also reduce the risk.
Apart from the above, there are other couples of more reasons why most people lose money in the stock market like frequent trading, entering the derivative market without knowledge, lack of self-control, etc that are responsible for most people losing money in the stock market.
We hope this article was useful to you. If you have any questions or queries, feel free to comment below. Further, feel free to share this post with your friends so that they can also avoid losing money in the market. Have a great day and Happy Investing! And so, I am delighted to share my learnings with you. Thanks in advance. Hi Mayur. Sure, you can send me doubts at info tradebrains. But, I can help you with the fundamentals. Most of the beginners lose their money because they follow the same which are mentioned above as not to follow.
Good awareness. Its very important lesson. I also followed the wrong process and made loss. Please guide how can the checked the fundamental and financial report of a stock.
Hi Subrata. Thanks for such a lovely article. Going long term Only for company with good fundamentals is certainly the best and safest way to earn in stock market. Please keep us informed like this. Thanks for sharing. The blog is very informative and the tips are very effective.
As many people believe in other people quickly not doing enquiry and then they get trapped in what people said. The tips give very clear information. Very informative. Can you help me with what research should I do before investing? Hi Niar. Thanks for your comment. I have a question regarding point 4 and point 5. In the last paragraph of 4 its written to reduce loss making shares to reduce liability.
Kindly clear my doubt. Hi Jatin. On the other hand, in the 4th point, its stated to cut your stocks if its continuously performing poor even if you have given it enough time say years.
It might never return you even the investment amount and there is no point to hold it for long and lose more. I hope this is helpful. I love your article. My personal suggestion to everyone entering the market is study minimum fundamental and technical analysis from good mentor.
Then put 10k in market to practice all the things u learned and once you understand the working techniques and research process then start little higher investments. Stock market is very interesting and make more money of the Indian market bse and nse very awesome and I am very interested in stock market so please sir help me few guidelines.
Hi Satyam. Glad you are interested in learning. Happy Investing. Hi Kritesh Regarding factor 4 what you mention about holding onto losses….. May be in the short term one may suffer losses. Dear Mr. However, definitely, we need to cross-check before coming to any conclusion. Hi Kritesh Great article. Even I have the same experience. About 5 years ago when I just started stock trading I had done lots of silly mistakes.
Hi Aamir. I agree that the stock market is a long-journey and mistakes are the building stones. Thank you for your comment.
Hello,Thanks for your interesting article.
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