WHAT TO REALLY EXPECT?
What you should really expect is to take losses. The markets don’t work out for everyone. In fact, the markets do not work out for most people. So if you want to play the markets for profit then also expect the opposite to happen: the markets make you lose money. The fact that 95% of traders fail is no laughing matter.
There are many reasons traders fail and can include lack of knowledge, unrealistic expectations and psychological factors i.e. a trader’s attitude.
WHAT PEOPLE DO:
A. Lack of knowledge about trading the stock market:
One of the biggest reasons most traders fail to make money when trading the stock market is their lack of knowledge. Poor education is also an attributing factor since many do seek out education but they look in all the wrong places and end up gaining a poor education.
Many people feel they are trading just because they buy and sell shares. But when asked how they analysed their stocks, and trading opportunities, they just claim they read reports in newspapers and on websites, and occasionally looked at online charts with their broker. This would fall under the scope of lack of knowledge and poor education which in the long run will lead to failure.
Further analysis shows that these people only had a rough idea of the fundamentals they needed to evaluate a stock and they had little or no idea what they were looking at when it came to understanding and interpreting a chart.
B. Unrealistic expectations about trading the stock market:
Trading the stock market inherently involves some level of risk. Yet the majority of people attracted to the market are willing to take higher risks, believing they are adequately equipped to trade after reading a few books or attending a weekend course. Indeed, many traders seek out instant gratification, plunging head-first into the stock market using complex strategies in the hope of profiting from their efforts. Sadly, many lose their hard-earned savings on unrealistic expectations.
Knowledge is everything, but in the context of trading I believe it is the application of the correct knowledge that is everything. The streets are littered with wanna-be traders and in a bull or bear market many of these traders are profitable mainly through sheer luck rather than good knowledge and trading skills. Strong bull or bear markets tend to hide mistakes in judgement, trading mentality and lack of knowledge. This is why I say that unless you have been trading the stock market successfully for more than two years, you cannot consider yourself a trader.
C. The psychology factors affecting your trading:
No matter why you trade, learning to trade is the easy part; the hard part is understanding your psychology. It is true that your brain is the ultimate determinant of your success as a trader. If lack of knowledge is the main reason most traders fail, then psychology comes in a close second.
A trader’s attitude or psychology determines not only how they approach their trading but it also determines how they will approach the stock market and furthermore how they handle stressful situations when they are losing. The emotions of fear and greed drive traders and investors alike, and without the correct education these emotions are often amplified, which leads to costly mistakes. Everyone can win at trading you know your worth as a trader when you can effectively manage a losing position and come out alive at the end of it.
WHAT PEOPLE DON’T DO:
1. Take advantage of time:
Although it’s possible to make money on the stock market in the short term, the real earning potential comes from the compound interest you earn on long-term holdings. As your assets increase in value, the total amount of money in your account grows, making room for even more capital gains. That’s how stock market earnings increase over time exponentially.
But in order to best take advantage of that exponential growth, you need to start building your portfolio as early as possible. Ideally, you’ll want to start investing as soon as you’re earning an income.
2. Continue to invest regularly:
Time is an important component of your overall portfolio growth. But even decades of compounding returns can only do so much if you don’t continue to save. Continually investing is a key factor in your success as a trader/investor. Making regular contributions doesn’t have to take much effort; you can easily automate the process through your 401(k) or brokerage account, depositing a set amount each week or pay period.
3.Prepare for a long term investment:
If you’re looking to see healthy returns on your stock market investments, just remember to play the long game.
For one thing, short-term trading lacks the tax benefits you can glean from holding onto your investments for longer. If you sell a stock before owning it for a full year, you’ll pay a higher tax rate than you would on long-term capital gains.
4. Maintain a diverse portfolio:
All investing carries risk; it’s possible for some of the companies you invest in to under perform or even fold entirely. But if you diversify your portfolio, you’ll be safeguarded against losing all of your assets when investments don’t go as planned.
By ensuring you’re invested in many different types of securities, you’ll be better prepared to weather stock market corrections. It’s unlikely that all industries and companies will suffer equally or succeed at the same level, so you can hedge your bets by buying some of everything.
5. Consider hiring professional help:
Although the internet makes it relatively easy to create a well-researched stock portfolio, it can still be wise to hire an investment advisor for some help. Even though the use of a professional can’t mitigate all risk of losses, you might feel more comfortable knowing you have an expert in your corner.
If you are a trader then work on positive trading factors such as taking advantage of time, investing regularly, diversifying a portfolio as well as getting help and advice by confident, resourceful and profitable fellow traders.
Also, it is also works best to have a great mentality towards the market, lesson or resolve bad trading attitudes, limit expectations to reasonable goals and work on having a real working education of the markets.