Why Maximum People Lose Money in Stock Market ?
Why most people lose in stock market?
We have heard 95% people lose money, lets look at the reasons for their losses!
A Thread 🧵🧵🧵
👉 Investing or trading based on emotional bias
Taking trades on emotional bias is sure shot way to lose. It should be supported by data. Fear, Greed and Bias often drive the trading decisions.
👉Risking more than what they can afford
We have to risk only what we can afford lose in the market. Our risk in a trade should not be more than 1% of capital.
👉Not following stop loss
Most don’t even have stop loss. Every trade we are taking should have stop loss.
It can be based on overall MTM or price or support or resistance. When the price reaches that level, we have to exit the trade.
Hope is the worst thing in the market.
👉Averaging the losing stocks or trades
When the trade we have entered or stock we have bought based on certain analysis is going against our view, we should exit it. Instead, most average stock buying price or option buying price
👉Taking too much leverage or margin
Before selling or buying an option we must understand how much leverage we have taken.
for example, a NIFTY FUTURES contract can be bought with a margin of 1.5 Lakh with leverage but actual contract size is 8.7 lakh
A lose of 5K is 0.57% on overall contract size but same lose of 5K is 3.33% on required margin. Understand the risk involved.
Just because broker is blocking 1.5 lakh doesn’t mean we should only that much.
👉Want to make quick money
If you wish make quick money, try your luck in casino, not stock market.
It is not definitely a place to earn quick money. It is long term game and business. Yes, People make quick money but lose quickly too. Many expect their money to grow 2X,3X
👉To be more precise stock market is a place to LOSE MONEY QUICKLY THAN TO EARN IF YOU ARE GREED, PERIOD!
👉Holding onto bad investments and selling good ones
Because of attachment to the particular stock or position or business we tend to hold that investment even if it not performing well.
👉If we invest in 10 stocks, 3 or 4 give negative returns, 2 may become multi baggers. Neither all companies go bankrupt nor all become multi baggers. Diversification is the key in anything
👉Lack of patience
There may come a time when the stock market stays in a bear phase for months. You will never see your investment growing. In fact, you will see your investment in red.
Patience is the important thing in stock market
👉Carrying overnight positions without any hedge
Most traders carry overnight positions without any hedge.
One black swan event is enough to wipe your capital. If you are a short erm trader never carry overnight position without understanding risk involved
👉Trading with less capital
As I said stock market is business. You should have minimum capital based on the instrument you are trading and type of trader you are.
Trading with less capital in hope of making it 10X in one month is also sure shot way to disaster.
👉Not following particular system or no trade plan
When you have trading system or set up, you must follow it. If it gives buy signal, just buy. If it gives exit signal then simply exit positions. Don’t attach yourself to it too much.
👉Not having minimum knowledge
If you want to trade or invest in stock market should have a minimum knowledge. You have to keep the efforts it takes. There is no free lunch
👉Trading P&L instead of charts throughout the day
Most traders always are connected to P&L or MTM. This continuous staring at the MTM never allow us to exit the position when we have seen green. We should only focus on setup or system, Not on MTM
👉Being carried away by the large profit MTMs on SM
Different traders will have different capital and their risk appetite is different.
We must understand just because someone is making 1 million in a single day, we must ask what was he capital? What was his risk appetite?
END NOTE: We must focus on process not the end. Follow the process, improve it. In the end everything would be fine!