20 reasons why retailers fail to make profit in stock market!

Stock market is a place which can quench the thirst of millions and billions of people. This was once stated by Lt Harshad Mehta. 

But it is also a well known fact that it is only few who really makes money from the market and becomes wealthy in the long run whereas most of the entrants suffer losses or makes very nominal returns which when calculated are often lower than the FD returns of the Bank. 

To make oneself successful in the stock market the first and the foremost thing is to identify why one is making losses or as to why his performance is poor. Once you are able to identify the same, the battle is almost half won. 

In this article you will see the major reasons why the new market entrant or a new retailer is unable to make money from stock market. If one is able to just refine his approach and is able to tight the loose strings, the result would be phenomenal. 

Some of the reasons for the losses or very nominal returns:

  • Generally retailers enter the market during euphoria and when the market is in bull run. They got attracted towards the market after hearing quick gains of their friends, relatives or even through the YouTube influencers.

  • At initial stages, stock picking is generally done through word of mouth or through suggestions received from friends, broker or through social media influencers. There is hardly any research on the stock as a result the necessary conviction is missing there. 

  • Actually behind the mind goes the intent of making quick money through the stock selection. But when a particular stock doesn't perform as per the expectation and imagination, then the newly born trader or the retailer quickly moves to other stock. This is also because of lack of confidence and conviction in the selected stocks. 

  • Generally the funds brought by the retailer at the initial stages are small so gradually all his funds get blocked in multiple stocks which he had bought after hearing from someone. Since the quantity of the individual stocks are small so even if there is gain, the same are very small. Whereas the majority of stocks remain under performer.

  • Getting too aggressive in infusion of funds. This usually happens after some initial gains in stock market. The retailers get too bullish and start putting all the savings in the market. Many a times he even liquidate his emergency funds and pour them in market with a view of making bigger returns in a short time frame. This can purely be said to be greed in simple language. But when the market starts moving adverse. He gets nervous and it is then the fear factor comes into play and he often book losses which are normally big . 
  • Slowly the frustration grows, some leave it there only while few starts doing some study of stock market and got attracted towards intraday trading or future and option trade. Now this is a really a danger phase...

  • Intraday trading and future and option trades are addictive in nature. One experiences quick money either coming in or going out. The volatility combined with the effect of leverage gives big up moves as well as down moves in the positions leading to lot of adrenalin rush. Since there is leverage in these kind of trades, so the returns are big but sadly the losses are even bigger. If the initial trades had resulted into some good profits, then the trader soon goes into dream land and starts imagining himself getting rich soon. He starts boasting before his friends. He starts imagining that ultimately he has in his hands the trick to get rich soon. But actually this is the trap and he becomes more callous in his approach and starts taking bigger positions and more riskier trades. Generally with time it erodes the capital of the retailer and he also sells his equity holding to meet out the requirement of margin money. The volatility of the market makes things unmanageable especially when the position sizing is big. 

  • This time is really very challenging in traders life and puts him into lot of mental and emotional stress apart from the financial drain out. Most of the new retailer cum traders either leave the market whereas some starts rethinking to make changes in their approach towards the market. I would say that this stage comes generally in life of all the active traders or market participant. But this is where one starts evolving in the market and starts becoming bit mature. 

  • One of the major reasons for losses in the market is that one takes position in the stocks much bigger than his risk taking capability.

  • At initial stages the new entrants are often allured to go for hunt of multibagger stocks. Those are generally penny stocks and are bought often after getting information from social media or through word of mouth from friends or known. Needless to say, most of these scripts are operator driven and kachra stocks (poor quality stocks) and the positive news are floated deliberately to create liquidity in them for easy exit of big players. 

  • Over trading or revenge trading is also one of the major reasons for capital erosion. Always remember market is supreme and it rewards those who respect it. This happens also due to continuous being before the screen and watching the movement of stocks. 

  • The danger in too big position is that even when there is a bit of upside move one sees a good gain in the script and generally the retailer exits the position too early in order to protect his gain. But when you analyse the gain percentage, they are very nominal. I won't say that the behavior is abnormal but its out of the bitter experience of losses which the retailer had experienced by then. He is in a hurry to cut the profit as early as possible and it gives him a feeling of winning the market and some ego satisfaction.

  • But the same is not true while cutting losses. The new entrant keeps on maintaining his loss making script for long. He even keeps on averaging them and obviously the same is by infusion of fresh funds from his savings or by selling his profit making scripts too early. 

  • Slowly the size of loss making script becomes very big due to continuous averaging and at one point it becomes unmanageable or better to say intolerable for the new trader cum compulsive investor. It is then he out of frustration exits the market or chooses to sell his loss making script. Thus booking his losses which are actually huge. 

  • Remember that booking losses is the last thing which a new trader cum retailer ever imagines to do. He generally follows the rule "प्रॉफिट से डर लगता है साहब, लोस्स से नहीं"😆. Therefore his profits are too less as he cannot digest big profits and exits too early but don't book losses unless it becomes intolerable.

  • One of the major reasons for huge losses is that there is almost no exit plan from a loosing trade. Though generally the entry is made in any stock with a plan to get maximum of 5-10 % profit but don't get out of the bad trade unless it becomes intolerable which may be 50-60 % or even more. This is the major reason for overall poor performance in trade. The risk to reward ratio is totally tilted against the trader. His small-small gains in multiple trades gets swept away in just few adverse trades.

  • This approach of late exit from loss making script results in not only capital erosion but also causes loss of opportunity in market since his capital gets stuck in such scripts for long. 

  • Then the blame game comes into picture. Fresh entrant in stock market is quite hesitant in accepting his failures. He starts blaming others and the market for his losses. He starts taking more and more revenge trades which multiplies the losses. He is often frustrated because of lack of funds. He often thinks that in case he could get more funds his pain would be over. He fails to realise that being successful in the market is more of a mind game and it takes time to tame the emotions and develop psychology of a successful trader. Remember, the more the money on the table, the more the stress would be and the untamed emotions will trigger even bigger losses. 

  • The stage of booking losses don't come soon. The new retailer cum trader takes this painful decision to book losses when he observes that though the market has shown several cycles of up and down but his portfolio and the loss making scripts never turns green. This usually happens because actually the averaging done by him is not scientific and is done at a much higher price level and when the script is actually at the bottom level he is hardly left with funds to buy.

  • This cycle keeps on going and when one opens his P&L statement will see the truth that a considerable amount has gone into the pockets of broker and further that the scripts in which he had booked profits are very minimal percentage wise and on the other hand the losses which he had booked are huge both quantum wise as well as percentage wise resulting into an overall subdued performance.

These are some of the major reasons for losses or minimal return in stock market. I would say that almost every new comer in the market does that in the beginning. In fact today's new entrants in the market are better informed and probably their evolution is much faster. 

Many of them with time makes changes and refines their style of trading and investment thus turning into a much better performer. But the key is that this evolution takes time and to gain out of it one needs to go through the turbulent phases and experience it personally it is then that the temperament and psychology of a successful trader develops. 

Always remember that evolution of a trader to a successful one is a it's a process and journey which is not that easy as it may appears. Training the mind, developing the psychology, controlling the emotions, acquiring the practical knowledge takes time and need continuous efforts. It is then one starts developing an edge in his trading. 

To begin with I would suggest that every trader should prepare a trade journal script wise. You can make it either in a hard copy or in excel sheets. Record your trades there and also your comments side by side. Keep on reviewing it from time to time. After some time you will have a very valuable piece of information readily available to you. Then you will be in a far better position to analyse your trades and to find out as to where you are committing mistakes. This will help you a lot in making modifications in your approach and to refine your trades. You can also read my article 5 steps for success in stock market. You will definitely find it to be useful. 

Thanks for reading the article 👍 and do share your thoughts in the comment box. All the best 👍

[Disclaimer: The aforesaid views and experience are personal to the author and should not be taken as any professional advice. The author is not a SEBI registered advisor. Further the author shall not be liable for any errors or omissions in the information and viewers are advised to check the same from concerned official sites or offices. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company or individual. We always respect the dignity and feelings of any religion, ethnic, individual, groups, company etc.]


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