Top 5 Reasons Why Most People Lose Money in Stock Market | NTA

Why Most People Lose Money in Stock Market?

Top 5 Reasons Why Most People Lose Money in Stock Market

Stock market investment can be tricky if the trader does not have an understanding of various factors which play a role in the market. This can be hard to absorb in starting but with time the trader understands the market and can lead to success. There are many instances where the market is showing a rise but the trader is Lose Money in Stock Market. In this post, five major reasons are highlighted to understand why the trader encounters loss in the stock market.

Lack of proper Research time

The trader’s major mistake is to follow the crowd without conducting proper research. When the market is going up and still your success is not guaranteed. The research for every stock is required to understand the market consequences in the long run.

The traders who face major losses are mostly who had blindly trusted the brokers or colleague advice. Various instances show that the brokers and your friends can provide you biased advice. So it’s always better to research yourself before investing in any stock. The traders should never miss out on any global events which can adversely impact the market, for example COVID pandemic.

Impatient Decisions

It is a famous saying that  “Patience is bitter but its fruit is sweetest”. This applies to stock market investment, the trader should invest in funds that can be held for a longer period. Making hasty decisions to achieve success can lead to heavy losses in the stock market. In a portfolio the trader tries to sell the profitable stocks early to earn the profit. 

Many experts have claimed that stock should be vetted at least 1-2 years to see the results. However, traders make a hasty decision and sell the stocks within months due to a lack of patience.

Non-Diversification

The portfolio should have a mix of all the stocks from the different sectors as it helps in reducing the loss and earning high returns.  When the portfolio is not diversified, the trader has a huge risk of going into losses as most of the stock is from the same company or same sector which is a vulnerable situation in case of change of any policies or market trend. For example, Change in fuel price will affect sectors like automobiles but will not have any effect on other sectors. 

So here diversification is the key to success in the stock market. The trader has to distribute its funds in a different sector to safeguard profits.

Holding losses for longer time

In most the cases as discussed earlier being patient can lead to high profits. However, If the trader holds the loss-making stocks for a longer period of time for instance 5-10 years,  it can become a very big reason for huge losses. In many cases, the company is not able to recover high losses and in the end, the share price goes negative and the investor is not able to earn even the invested amount.

Hence the trader should research and hold on to stocks for a reasonable time to earn profits.

Emotional Decisions

Trading is the game of perceptions and analysis. Most of the time markets go up due to the high spirits of the traders. Making emotional investment decisions can lead to heavy losses. When the market goes up, traders get excited and buy more stocks and in panic many times the stocks are sold abruptly. These decisions not only lead traders to Money in Stock Market but also complicate the investment strategy as the trader decisions are blacked by emotions. 

For rational decision-making, the trader should always research well and follow the facts. It also helps in selecting the right strategy for the  investor’s portfolio.

Closing Thoughts

There are still various reasons which can make you go wrong in stock market trading. Hence it is important to understand and analyze the market factors as well as your risk appetite to earn profits in stock trading. In the end, there is never too late to rectify your mistakes.

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