Why do 95% of Investors lose Money in the Stock market?

95% of Investors lose Money, 95% seems like a big amount, and some people don’t believe it either. However, it is correct.

Mr Nitin Kamath, the CEO of Zerodha, recently stated publicly that over 99% of traders struggle to outperform even FD returns in a year. Yes, you read that correctly 99% of the time.

“Money flows from those who manage it to others who do not.”

——David Ramsey

Some of the reasons Investors lose Money in the Stock market are below

Refusal to Accept Uncertainty

  • Trading, by definition, involves basic underlying uncertainty. The majority of individuals, though, feel comforted by certainty. This is due to the fact that our brains are hardwired to seek certainty. This is one of the biggest reasons investors lose money.
  • So, when confronted with ambiguity, we endeavour to obtain assurance and thus fail.
  • Nobody knows how far a stock can rise or how long it can fall.
  • Consider the recent case of PAYTM, which was listed at a 9% discount in 1955. It is expected to trade at 600 levels during the next three months. Who would have guessed? So everything is up in the air.
  • My trading career took a turn for the worst the day I recognised that markets are volatile.

There is no strategy

  • Many traders refuse to admit it, but the truth is that they have no understanding of what they are doing. After seeing a random YouTube video, their idea of a plan is a mix of technical indicators. This is another big reason investors lose money.
  • Always remember that, other than your parents, no other random person wants you to get money and live a Billionaire life, thus no one will publicly reveal a plan on YouTube so that you can make money by using it.
  • The greatest thing one can do is understand Technical Analysis, create a simple tailored strategy with the bare minimum of indicators, and then backtest it on several charts. Backtesting, paper-trading, and finalising a strategy is a time-consuming procedures that might take anywhere from 6 months to a year.
  • With adequate risk management and a simple entry/exit strategy, you may earn handsomely even with a 50% win rate.
  • Most folks come to D-street expecting to make quick money. However, after losing a significant amount of money, they understand that it is not an easy task.
  • Trading involves hard work, endurance, and dedication, and many people are no longer driven enough to put in the effort required to earn success and riches.
  • As many traders have discovered, the stock market can take you to the seventh heaven by demonstrating profits, only to bring you down into a deep abyss in a very short period of time.

“The most common reason that most people do not receive what they want is that they do not know what they want.”

—–T. Harv Eker

Absence of Emotional Discipline

  • Most traders are motivated by emotions rather than rationality, which is entirely natural. They experience a wide range of emotions in a single day, including excitement, impatience, frustration, confusion, and, yes, greed and fear. This is one of the reasons investors lose Money.
  • Everyone has emotions, but it is one thing to feel them and quite another to act on them.
  • Professional traders understand that acting on emotions is a recipe for disaster. They recognise that trading is a business that must be treated as such.
  • Trading should be as monotonous and rule-based as possible in order for your emotions to never take over your reasonable brain.

Trading Opposite the Trend

  • Long-term investors may benefit from trading against the trend since they have more time to study the market and foresee an emerging trend. However, for day traders, the greatest bet is to trade with the market’s momentum. This is one of the most common reasons why investors lose money.
  • Day traders, in most situations, rely on trading software to automate the trading process because they need to react rapidly to profit possibilities. If you want to be successful in day trading, you must gradually grasp the ability to read charts to time the market.

The key investment styles can be divided into three categories: active vs. passive management, growth vs. value investing, and small cap vs. large company enterprises.

  • When faced with a loss, day traders attempt to quickly recoup or average out their position. A loss indicates that the trade was incorrect. Traders frequently overtrade to cover losses, raising the risk level.
  • Losses are a part of trading, and when they occur, you must take time to analyse what went wrong.
  • The sooner you recognise and handle the loss, the higher your chances of avoiding costly blunders.

Failure to learn from mistakes

  • A Trading Journal is something that beginning traders should avoid using.
  • A trading diary is a log in which you can record your deals. Pro traders keep a trading log to reflect on prior deals and analyse themselves, and you should do the same!! Journals can help you determine where you can improve your trading. They are a useful method of keeping track of what went well, what went wrong, and what should be avoided in the future.
  • It’s similar to administering a practice test before the real exam. All incorrect answers from the sample exams are corrected so that the same errors do not occur on the final exam. It’s as simple as that.

Using Outside Resources

  • Day traders must decide how to trade and which stocks to buy. They frequently base their trading decisions on external trading suggestions. 
  • Your stockbroker will give you trading advice. There are also charts for technical analysis to help you keep track of the market. As a day trader, you must always resist following the herd and jumping on the bandwagon. It may take some practice to interpret the charts correctly, but it will be worth it in the end.
  • If you want to master technical trading, Smart Money provides comprehensive trading and investment courses that cater to various trader personalities.

If you don’t know how money works, you will never make money work for you.

Easily giving up

  • Traders enter the market, try trading for a few weeks or months, are disillusioned by early failures, and then give up. They don’t comprehend that trading is a skill that, like any other skill, takes time to learn and master.
  • What would you say to a first-year medical or engineering student considering dropping out of MBBS/BTech since he expected to be earning money by that time? You’ll say that you should first finish your education, obtain some experience, and then you’ll have all your life to create money.
  • The same is true in the stock market.

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