Why people fail in the stock market

[clubbin714]

I have spent a great deal of time researching this question.
1. Unrealistic expectations

2. Poor selection criteria when selecting relationships with those who manage their money

3. Lack of expertise and commitment to find some of their own answers in this area of their life (total dependecy on others)

4. Making decisions based on emotions rather than logic.

Of the four above, I think #1 and #2 are the biggest problems. I know it is frustrating to people to sacrifice and save money then have someone else mismanage it.

[Chichu]

While investing in stocks has a lot to do with strategy and analysis, it is still substantially depended on "luck", and thus can be considered a form of gambling. Consequently, the fact of investing in stocks by definition predicts possible failure. I say, failing like that is a "tax" on people who dont understand this simple concept.

P.S. My viewpoint partly falls under the "Unrealistic Expectations" category of yours.

[clubbin714]

Chichu is correct.

I've recently been reading an interesting book called The Poker MBA, which is very insightful in comparing the skills of a successful poker player to that of a successful businessperson, and in fact offers many references to successful stock traders as well. I would definitely recommend reading this book.

From my reading of it, I would gather that a successful disciplined poker player would be one of the BEST candidates to make a FORTUNE in the stock market, because basically the market is a giant poker game, with "tells" and all. It's just a matter of discovering what those are. And once that is accomplished, it seems like the potential rewards could be quite significant even in comparison to what a professional poker player could draw in. There is something to say about staring down your opponent in the eyes, and that may be missing in the stock market, but there are apparently many other clues that can be combined in order to compensate for that deficiency.

[Anonymouse]

The stock market is for the most part controlled, and predictable and dependant on what the manipulators of money, the money masters do, who sit in the Federal Reserve, these are the people who set interests and control the flow of money and the ultimate outcome of.

Events like the Great Depression or 911 show people had some insider knowledge about the workings of it. So while for the casual person this may go unnoticed, that isn't to suggest that it cant be or there areny any manipulators behind it.

[Chichu]

It is pretty understandable (not to say - obvious) that huge economic structures such as the Stock Market are manipulated. But since the vast majority of investors are unaware of the specifics of these manipulations, the manipulations themselves only add to the 'gamble'. As for the element of predictability it is very shaky and cant be taken as a reliable factor. And the fact of presence of manipulations alone is naturally taken into consideration, yet has debatable relevance to this discussion.

[clubbin714]

A great email I got from my good friend Mark regarding this subject

I will tell you why they fail.

Insufficient capital-- People don't trade appropriate to their account size. 90% of people lose trading commodities and I think this is why. The ads say if coffee goes from 100 to 200 you will make $37,500 per contract. Sure, but try this on a 5000 dollar account. If it goes from 100 to 98 first you will probably be stopped out and lose $750. And that's 15% of your account right there.

Unrealistic goals-- Sure there are traders out there who turned 10 grand into a million in a year. Maybe 1 or 2 every did this. Yet all systems want you to believe this is the norm, buy their stuff and you can too! So you overtrade and risk too much per trade, a surefire way to the poorhouse.

Gambling mentality-- I was guilty of this one. I loved being in the market! I loved turning on CNBC or logging onto the computer to see how much I was up (or down) today. It was exhilirating. Problem is you lose your discipline and focus. You get into a trade not because your rules tell you to, or the setup is there, but because you just don't want to be flat. YOu must have a position, and you jump in on nothing more than a hunch.

People rather be right than make money-- Cut your losses short and let the profits ride. Sounds easy, but the opposite is much easier (and more destructive) when real money is on the line. You buy at 10 and it goes to 9. There's 10%, get out? No way, I'm right, it HAS to go up! Now it's at 8, no way! I'll buy more. Soon, you are out of capital. Conversely, you buy at 10 and it goes to 11. Let your profit run? Naw, it drops to 10 3/4 and you get out. I have to be 'right' and win this trade. Nevermind that everything fluctuates and you will never get the big profit this way.

Failing to plan-- If you fail to plan, you plan to fail. Why are you in this trade/investment/business? What is your risk/reward ration? When will you decide to take the loss and sell? At what point will you take the profit if it works that way? Do you trail with stops or sell at a pre-determined point? Will I pyramid up? Will I buy on a scale down? Every question must be answered BEFORE you get in or you are failing to plan.

Betting everything on that one big trade-- I was guilty here. You get a couple losers and are down 20%. Instead of staying with your plan--or backing off and re-evaluating and staying flat--you try to get it all back right away. If I normally trade 1 contract, now I trade 3. If I normally wait for strength to buy, now I buy on a hunch. Surefire loser.

[sSsflamesSs]

ClubbinDude,
You have so many good friends...please let me in on your secret...I am dying to know.

[clubbin714]

sSsflamesSs

I really don't have a secret. I treat others like I would want others to treat myself and go from there

[sSsflamesSs]

Thanks a bunch, good friend. I will put this advice to work right away. Hope it does as much for me as it did for you. Oh, how will I ever repay you for such valuable advice?

[clubbin714]

Being yourself is payment enough my friend.