Why The Majority of People Lose Money in the Stock Market

The enormous profit potential of the stock market brings new investors looking to strike it rich every day. The problem with that is the majority of people lose money in the stock market.

The reason for this is because too many people do not take the stock market serious. Everything in life takes work, you work to create an income, you work to become good at a sport, If you want something to work for you, you have to work for it first. That is a basic law of success. Somewhere along the line the majority of people forgot that the stock market follows that basic rule.

Most people believe the market can just make them the fast money. It can make them the quick bucks without having to worry or do any work. After all the market goes up on average right. This theory works against the general public.

I have heard people say that they have money they do not need to touch for 6 months so they were going to put it in the SPY until they need it. Because the SPY goes up an average of 10% a year they figure they can make somewhere around 5% in 6 months. There are times when false assumptions like this can actually work and there are times when this thinking can cut your account in half, or even worse.

Now that we know why people fail in the stock market we will look at why people succeed. There are many theories out there but there are two basic things that all stock market professionals worthy of that title will agree on.

1. You need buy and sell signals. You need to have something that you can look at to determine if a stock is a good buy, a good short, or whatever you plan on doing with it. Even professionals who argue that you cannot time the market will still have signals that tell them when to buy and when to sell.

Without some set rules or at least an idea of your rules you will never be successful. Having specific rules also allow you to track your performance in the market along with make attempts to improve your success.

2. You need a way to manage your risk. Never under any circumstances should you bet all, the majority, or even half of your account in any one stock, ETF, or Mutual Fund. This is a huge armature mistake that is made much too often. It can lead to huge unwanted losses and leave you nothing to be able to come back with.

If you are serious about making money in the market you need to treat it as a business. It takes money to make money. If you lose it all you will have nothing left to make you an income. So being extra cautious with where your money is going is the first step.

These two things are absolutely critical to making consistent money in the stock market. All successful traders need to follow these two rules to be successful. Any so called “Professional trader” who disagrees with them is not a professional trader at all.