Why do people lose money in the stock market?

[So_Cynical]

biggest mistake to make - letting your buy price be an anchor.

Capital is to be protected. Looses need to be minimised and wins need to be run hard.

And yet loss of some sort is an absolute certainty, i think there are ways to minimise losses that don't include accepting them, as strange as that sounds.

Lets look at an example of that theory.

Market darling BHP is currently at the same price now that it was in June 2007.
Since then it has paid $5.84 per share in dividends.
Taking into account the dividend and CPI you would have achieved about 3.94% pa for six years on your investment.

I am aware that if you go back a further 6 years then you will capture the pre GFC and mining boom era but if you want to think long term starting now do you expect a repeat ?

Not saying that your theory is wrong, you are correct that it is easier but how effective for the future I have doubts about.

Just my

Lets expand on that example....chart show ample time after 2007 to profit, in fact a random sell point would be very likely to result in a profit and a stop loss once in 12% profit would guarantee it.
~

 

[Zedd]

Remember that every time you buy shares, the guy selling the shares is probably smarter than you.

 

[burglar]

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I don't think i said something stupid did i ?

For you, it is the unknown, ...

but the talking duck, aka tech/a, knows a better way!

 

[TheUnknown]

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For you, it is the unknown, ...

but the talking duck, aka tech/a, knows a better way!

thanks for your

 

[burglar]

thanks for your

When a duck talks, I listen!

 

[TheUnknown]

When a duck talks, I listen!

Cool story wannabe pro trader.

 

[saundy69]

Simple: Greed, greed, greed.

Greed attracts the masses to what looks like easy money. As we know, there is no such thing as easy money.

It takes $$$$$ worth of losses (read: lessons) before people realise its a methodical and structured approach, an approach that takes careful planning and execution. Finally, most people lack the discipline and that discipline is important! “If I just hold on it will come back, I can ignore my stop, it’ll come back.” Sounds like the words of a gambler....

 

[cynic]

Cool story wannabe pro trader.

Duck da dis' !
Don't dis' da duck!

 

[Craton]

Simple: Greed, greed, greed.

<snip>

...and in response to the OP.

Fear AND greed are the usual suspects as to why these 'investors' lose out.

Fear of missing out, fear of being wrong, fear of losing it all are just a few reasons in the fear dept.

Greed, well the word says it all really and can play out in oh-so-many ways.

These two words describe emotions and once emotions get in the way of doing business (especially with money) things will go awry.

Also, losses aren't always a bad thing as these can be offset against gains thus could be seen as a tax ploy.

 

[13ugs13unny]

... could be seen as a tax ploy.

Well thats one angle, most people lose money because for the some reason its the same people that like to pay 1/2 price specials at woolies, coles - then the same people go out and buy overpriced shares.

FOMO [fear of missing out} is a fear in the back of the mind the big rollers play on all the time.

When the market spikes like last few days..the smart ones are selling, and your left holding the monkey....seriously who really believes the markets generally will just keep going up and up forever FOMO?

Share trading longer term is like a locust plague, once it swarms comes in waves then a change in weather wipes them out.

If 100% of people were reasonable logical and intelligent there would be no market.

 

[MARKETWINNER]

I agree.

As I have read tech/a say it is not about being wrong it is about how you respond to being wrong. Boggo and others here constantly throw up charts identifying not just a perceived potential entries (probability) but position sizes, initial stop losses (risk) and initial targets (probability).

The moment I understood (quite recently) that this game is about probability and risk management I changed my thinking. Now I've just got to change my behaviour (and learn and practice the required behaviour).

That said, in the long run (over thirty years plus) I am sure that an averaging in strategy into good growth and/or income stocks is going to do OK. But as we have seen in the past few years and as the historical charts demonstrate, there are decades where averaging into the blue chips or the index is going to get you nowhere.

I like your following ideas.

The moment I understood (quite recently) that this game is about probability and risk management I changed my thinking. Now I've just got to change my behaviour (and learn and practice the required behaviour).

When we pick stocks two of the important factors to consider are Margin of safety and risk management.

 

[Trading Tools]

I believe many new traders can easily get caught in the trap of focusing more on their winning percentage (accuracy) or entry setups, rather than having a balanced approach to their overall trading system, thereby limiting their trading success. There are many aspects to successful trading which are equally important and must not be neglected, including risk/reward ratio, trade management, money management, etc.

Another critical, yet often overlooked aspect is, knowing the system you’re trading actually has a positive edge/positive expectancy over a large number of trades. Expectancy ($ per trade) = (Win% x Ave Win) – (Loss% x Ave Loss)

Remember trading is an odds-based endeavour and traders are continually challenged by the prospect of making decisions in the face of uncertainty. As a trader, we must therefore place our trades based on a trading plan/system which has a proven edge (positive expectancy) over a large number of trades and we must learn to think in terms of probabilities.

If your trading plan does not show clear positive expectancy then no amount of trading psychology, or anything else for that matter, will help in the long run.

Trade ONLY when you have an identifiable, proven positive edge!

Cheers

 

[Craton]

Trading Tools reminds me that I guess too that there is the difference between the trader that actively trades equities and the investor that is parking excess funds. Both can lose or win and both would have a different strategy for exits.

How they cope or deal with RISK and their TIME perspective will have a lot to do with the loss equation as well.

 

[Wysiwyg]

Maybe because we approach the market too logically. We expect something to happen and it doesn't and I wonder if that is by design? You see, when the exodus or exuberance is over, the trend reverses. People have bought near the unknown top and sold near the unknown bottom. Squeezing participants out of or into the market.

 

[joshwelsh]

I am wondering how do individuals lose money in the stock market?. Do they fail because of there lack of knowledge in Economics, Finance and Sharing Trading and TA Software ?. Do they just see $$$$ signs everywhere and splash there cash around hoping on luck ?. I mean how do some investors fail in investing there money successfully in the stock market?.

All I hear in regards to the stock exchange people losing money I even know people who have halved there investment money in the stock exchange when trading shares. I hear that its a system made to lose money rather then make money?.

Are there any well written share trading books with strategies that can atleast some what help reduce your risk of losing all your investment money in the shares?

Thanks

because people get conned into thinking they can become a proficient trader because they have a fancy platform with lots of lines on it without understanding the macro and micro economic factors that drive stock market returns, they also think they can day trade and dictate to the market how they are going to trade.

i personally would recommend Investments By Zvi Bodie it will give you a great understanding from the top to the bottom of what actually drives stock market returns and how to capitalize on value chain shocks and events around the world.

 

[AlterEgo]

because people get conned into thinking they can become a proficient trader because they have a fancy platform with lots of lines on it without understanding the macro and micro economic factors that drive stock market returns, they also think they can day trade and dictate to the market how they are going to trade.

i personally would recommend Investments By Zvi Bodie it will give you a great understanding from the top to the bottom of what actually drives stock market returns and how to capitalize on value chain shocks and events around the world.

You can trade quite profitably without any understanding of economic factors though. In fact, without even knowing anything about the companies that you are trading. You can just trade on the price action by itself.

The reasons I think most lose money is;

1. Most people have not formulated any sort of plan.

2. If they do have a plan, they have not tested the plan to see if it has any chance of making money. They just believe it will work because some stock guru said it will. They haven't actually tested it themselves.

3. Emotions. Most people will deviate from the plan once their emotions get involved.

 

[tech/a]

There is only one REASON people lose money trading.

They get on the wrong side of the market
More often or longer than they are on the right side

There are endless reasons why they get there and or remain there.

Get on the right side of ANY TRADE and stay there more often or longer
Than your not and you'll profit.

It's not that complicated!

 

[SuperGlue]

Because people are not afraid of loosing but afraid of winning.

Example, when on a loosing trade, trade becomes a long term investment, so lost gets bigger.

But when on a winning trade, better take profit now, so profit is small.


Ask anyone who trades (except for a few season traders):

what if you make a lost, will keep it for long term, it will bounce up - has a long term plan
what if you make a profit, take proft - has a short term plan.

I confess, I do occasionally fall into the above trap.

 

[Weatsop]

You can't pick the bottom.

You think you can.

But you can't.

 

[tech/a]

You can't pick the bottom.

You think you can.

But you can't.

You don't have to.