Why do so many retail traders fail at the stock market?

Did you know that of all the people trading on the stock market, only 10% are able to generate profits regularly? That is visibly shocking disparity and it results from 3 main factors:

  • Lack of knowledge
  • Unrealistic expectations
  • Mental blocks

Let us discuss about these three hindrances and their mitigation measures in detail.

Lack of knowledge

This, perhaps, is the biggest reasons why 90% of stock traders fail at the market. Just like any other field of work, stock trading too has its rules, regulations, principles and tricks – and unless you spend some time learning about these from the right sources, you’ll end up as another casualty on the stock market.

A trader, who understands the market will always have a plan, would have strong reasons for buying and selling stocks and managing the trade. Besides this, they’d also put strict money management rules such as a stop-loss, to ensure they make maximum profits while taking minimum risks.

Unrealistic expectations

Many people think of entering the stock market and becoming rich overnight. What happens is that they take big risks and work with complex strategies in hopes of deriving profits, but end up losing their capital. Therefore, it is important to give some respect to the trading market and act according to your experience. Unless you have been at least two years in the market, you shouldn’t chalk up your successes to your skill, but rather to luck. Analyze what’s working and why it’s working. Build slowly. Rushing would only end up causing you harm.

Mental blocks

Both fear and greed are your worst enemies in the stock market. And these irrational impulses can be further amplified by poor trading knowledge and lack of capital. People, who have little money to invest, think about making it big in a short span of time. So they end up taking big risks in order to generate bigger profits, but the moment the trades go even slightly wrong, they suddenly fall into a pit of fear – because they cannot afford to lose their money.

This only ends up hurting their pocket because the market doesn’t care about people’s sensitivities. It does what it does. So the best way to trade is to always invest only that much amount which you can bear to part with. Also, another way of completely removing fear and greed from the equation is to opt for automated trading where a tested computer algorithm studies the live market feeds and gives the best buying and selling signals.