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Why people lose money in the stock market

There are all sorts of ways to lose money, but these are some of the reasons why people lose money in the stock market without even trying. Keep your eyes open for these 9 ways.

9 Top Reasons Why People Lose Money in the Stock Market

1-Overtrade

There are two ways to over trade but both are equally as damaging to your portfolio.

The first is by jumping in and out of the market too many times in an attempt to catch lots of short term moves. The problem is that the commissions for each trade significantly eats into profits and can destroy your chances.

The second way to over trade is by risking too much capital on any one position, meaning that one bad trade can result in losses big enough to wipe out an entire account.

2- Follow tips

While it is good practice to follow what the experts are saying about the market, it is generally not such a good idea to trade like them. The problem with following someone else’s advice is that when the trade turns sour you most likely won’t have the confidence to stay in the trade. Successful traders rely on their own research and strategies that are aligned with their risk appetite.

3- Do not use stops

Successful traders always use stops in the market to limit the possible downside risk on their investments. The market can always go anywhere so without stops the possible downside to your investment can be limitless.

4- Fight the trend

All good traders know the best way to trade the market is to follow trends. Going against the tide can sometimes offer big rewards but more often than not it is a losing strategy.

5- Don’t have a plan

To trade the stock market successfully it is important to have a plan of action in place so you know exactly what to do when things go wrong (or right). Each trade should have at the very least an entry and exit target, a stop loss point and a good reason for making the trade in the first place.

6-Trade the unknown

Many traders and investors are successful, not because they have some innate ability to time the market, but because they specialize in one or two areas and learn it inside out– Be it oil and gas, real estate or gold miners, focusing on one or two areas is the best way to prosper.

Why People Lose Money in the Stock Market

Why People Lose Money in the Stock Market

7- Ignore money management

Money management is the key to successful investing. In fact, excellent money management can be the difference between a profitable and losing strategy. As a rule of thumb, professionals usually commit only 1-2% of their capital on any one trade.

8- Trade with money you can’t afford to lose

Possibly the worst thing you can do when entering the market is trading with money you can’t afford to lose. If you trade with money you can’t afford to lose, you will likely make all sorts of bad decisions and put your credit rating at risk.

9- Trade by emotion

The biggest reason why people lose money in the stock market is by trading on emotions such as fear, greed or hope is the worst way to approach the market. Successful investing takes dedication, study and patience and needs to be conducted in a professional manner at all times.

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