The Most Important Reason(s)Individual Investors Lose Money....!

WORDS OF WISDOM FOR THE DAY : 

 

If there is a single line of demarcation between consistently successful investors and everyone else, it seems to be captured by a simple idea well known on the stock market: Bad investors think of ways to make money. Good investors think of ways to not lose money.

 

Trading coaches and psychologists are particularly apt to speculate as to the major reasons traders and investors lose money. Among the usual suspects are: failure to plan trades or operate from a trading plan; loss of discipline with respect to risk management; impulsive (over)trading; and failure to trade reliable, tested ideas.

 

The main reason that most retail investors will lose money is because they make their decisions on emotion. When it comes to investing, your emotions will always tell you to do the opposite of what you should do. When stocks are down, you panic, and you sell. When stocks are high, you buy into the euphoria, and buy. The result is often losing money. Successful investors have a strategy and they stick to it.

Greed is your enemy, most people tend to buy more when they have made money but this is exactly opposite of what you should do. When a trade has moved your way there is often a higher degree of risk, using your paper profits to buy more is a prescription for disaster.

The market is not a free market - As an individual investor, you don't have the same advantages of big institution traders/funds. There is definitely some level of manipulation in the stock market and even if it's not blatant manipulation, with the majority of the daily volume being driven by super computers, it's hardly a normal market. In order to succeed as an investor, you need to understand how the market really works. Know that it doesn't work in the manner that we think or naively hope it works. Because of these manipulative or computer-driven forces on the market, the market is prone to excessive volatility.