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Why do people lose money in the stock market?

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Elliot

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19 February 2011
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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
 
This is just a brief answer but to trade short term you want

1) a reliable edge
2) If swing trading, aim to make your winning trades at least twice the size of your losing trades . If momentum trading, aim to let your profits run as far as possible and cut your losers short. You can do this by setting profit targets and stop losses on each trade ahead of time.
3) risk the same $ amount on each trade (or maybe a multiple of that amount depending on confidence).
4) the right mindset

1 and 4 are essential, imo.
2 and 3 are a very good idea, perhaps not essential.

Others will have different views.
 
Simple, it's a zero sum game. (Negative if you include fees)

A bit like throwing some food into a cage of lions. The toughest few will get most of the food while the rest won't get much.

No matter how good of investor everyone is, a few with slightly better abilities will take the money from the rest.
 

+1 exactly
 
why do people lose money in the stock market? in my opinion - emotion. people let their emotions get the better of their rational thought processes, and as minwa said, others prey on that and take advantage of the foolish decisions that result

and i'm not saying i've mastered the emotional game either. i haven't. only a couple of weeks ago i made a dumb decision to not close out a vertical put spread that had already reached 80% of maxxing out, just because i was fuming at the MMs. it didn't turn out very well
 
Emotion, yes, also greed, lack of knowledge or pure bad luck. I'm relatively new at this, sort of - have been buying shares for a long time but only really became interested and involved the past two years. For that reason, since I am still learning I have bought some fairly defensive, "safe", long term stocks and sat on them while I learn a bit. I'd say in another year or so I will look at strategies other than "long term", "buy and hold", even though I am quite happy with how my last year went.

People new to the game see reports of big gains, and think, "I can do this" and start to get a bit excited... Eventually they may have a bit of bad luck (or make bad decisions), and they lose some dough - the market may be down a bit, and they may make that money back in a week/month but they get emotional, panic and withdraw the lot, causing another "failed stock market player". Best to learn what you are doing before playing the big shot IMO.
 
Noobs,


Newbyz always make mistakes, usually by lack of experience.
 
Because it's a mixture of experience, time, timing, planning, thinking, knowledge, skill, art, emotion, & psychology - how many people have all mastered all that? Oh, and luck plays a part, but don't reley on that.
 
Ignorance

Lack of knowledge of what it takes to be successful in the markets.

Lack of willingness to commit the time and effort to find out.
 
They trade management behaviour instead of stock price behaviour.
Refer to RED and PEN threads for examples.
 
Generally people don't take control of their investments.
But the market does.
 
too many buy high and sell low

sounds simple but the WB principle of buy when others are fearful and sell when others are greedy is not always easy to do, especially the the buying when all you hear is doom and gloom end of the modern world as we know it.

A simple way for me to get around this is to make notes of the reasons I bought a share. I currently buy with the intent of holding for the long term, but when the share price does move a lot - in either direction - i revisit my reasons for buying and if that still seems valid I'll hold my ground.

Only problem is the market can be irrational for so long as to wear out even the most patient investor. TBH I rarely think the market is rational and more a sentiment game of musical chairs.
 
Even expert make mistakes. Nobody can win market all the times. Experienced players have edge over others. Stock markets look for future events.New players should learn as much as possible. Nobody can predict 100% correctly.
 
Many people lose because they are new to the game.

Put it in a simple way, if an expert gets 6 or 7 at best out of 10 trades right, what hope does the average joe have at the beginning ?
 
TheUnknown said:
Many people lose because they are new to the game.

Put it in a simple way, if an expert gets 6 or 7 at best out of 10 trades right, what hope does the average joe have at the beginning ?
Click to expand...

As much hope as any if he knows that it's not about being right.

There is another way.
 
TheUnknown said:
Many people lose because they are new to the game.

Put it in a simple way, if an expert gets 6 or 7 at best out of 10 trades right, what hope does the average joe have at the beginning ?
Click to expand...

Mark Twain got it right;

"Let us be thankful for the fools; but for them the rest of us could not succeed."

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