Why Traders Loose Money ?

Over the years, I have seen several people (including myself) lose fortunes while trading stocks, and I’ve found that invariably, it would be for the same reasons. Such reasons appear mostly psychological and occur often in the trading scene.
It is a known fact 80% of traders lose money and 20% makes profits on the expense of 80% traders going well verse with
Pareto principle
So what exactly is the reasons behind that the misery of traders losing money.

Trade without plan: Most of traders enter the market based on there intuition. They just want to trade as soon as market opens without having any knowledge of volumes, support and Resistances. They just trade coz they want to trade.

Over Leverage: Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.

Over Trade: if suppose a trader make 10K in a day he will not stop and electrified with the winning streak bet more and end up losing all the money earned.

No Stop Loss: No trading plan means no specific risk is defined and hence Stop Loss is a BIG NO.I AM ALWAYS RIGHT ATTITUDE.

Directional Bias: Traders make up their mind that I want to be either long/short and fail to take position on what market is signaling and hence make losses.

No Discipline: Not following a disciplined trading program leads to accepting large losses and small profits. Many traders do not define offensive and defensive plans when an initial position is taken.

No Holding power: Traders take large positions at one shot and are unable to bear the shakedown which market gives in extreme cases and are forced to square off the positions.

GREED: It allows traders to lose profitable positions to move into loss while they hope for large and unrealistic targets.

No Patience: Losing Traders do not have patience for price level to come and take positions; they just want to enter as soon as they start trading.

No Money Management: Due to no trading plan, Traders have no money management plan and are wiped out of market.

No Shorting: It has been observed that most of losing traders fail to take shorts when market is falling, they thinking shorting as a taboo and always go along with long trades only.

Traders believe what please them to believe and are blindfolded by their own vision they fail to recognize warning what market is throwing at them
.
Bucking the trend: Market is falling let’s take a contra trader kind of attitude wipe out a trader from market.

Traders plan to buy at lows and sell at highs and get stuck with a losing position 90% of the time. 

Beginner’s Luck: A novice trader will always make money in first few trades and get overconfident and does mistake which make him surrender all profits and in many cases start making losses on all trades.

Averaging a Losing trade is biggest blunder a trader can do.

Most of traders are under capitalized and trade position to large as compared to there actual trading capital.

Unable to accept small losses and turn those losses in big one which wipe out there entire trading capital.

Trading on Tips and market rumor.

Trading with emotion and heart instead of mind.

Get out of a profitable position at an early stage and holding a losing position till it gets squared off. 

EGO EGO EGO EGO

Failing to digest the fact that market is supreme and we are just a drop in a large swarm of people.

Getting whipsawed by volatility.

I hope reader will try to overcome the common losing mistake by going through this article and make there way with 20% of profit making traders.

I would request readers to add few points which i might have missed or happened with them in there trading career.

Basics of Mutual Funds

What is a mutual fund?
A mutual fund is a professionally managed investment fund that pools the money of several investors and makes investments on their behalf. Individual investors in the mutual fund own ’shares’ in the fund and receive a return in proportion to their investment.
Why should I invest in a mutual fund?
Investing in a mutual fund has the following advantages:
i) Professionally managed – Mutual funds are managed by professionals. Individual investors benefit from the high quality research and analysis that goes into their investment process.
ii) Well diversified – The large pool of funds provides the opportunity to make a wide array of investments. Mutual funds are very well diversify such that a loss in a particular investment will be offset by profits from other investments. The net return is thereby beneficial to the individual investor.
iii) SEBI regulated – Mutual funds are regulated by the SEBI. This protects the individual investor from ponzi schemes and other potential fraud.
iv) Liquid – Mutual funds are highly liquid and so the individual investor can convert their investment to cash with relative ease.
Is my money safe with a mutual fund?
Mutual funds are regulated by the SEBI and are under strict regulatory supervision. They are required to fully disclose the details of all investments and are overseen by a board of trustees that should comprise of more than two thirds of independent directors.
What are the disadvantages of investing in a mutual fund?
i) Additional Costs – Fund management adds an overhead to the investment process and this additional cost is borne by the individual investors in the form of management fees.
ii) Taxes – Investment decisions do not take into account the tax liabilities of individual investors. Hence it is often not possible to minimize tax liabilities on mutual fund investments.

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Basics of Financial Instruments

As an investor you have several options when it comes to investments. The following is a list of investment options available in the capital markets.

1. COMMON STOCK: Common stock is a financial instrument that represents ownership in a corporation. Holders of common stock own a portion of the corporation. They have voting rights in board member elections and other corporate policy decisions. They receive dividends from the corporation. However, in the event of a liquidation of the corporation, the holders of common stock are lower in the order or priority compared to preferred stock and other bond holders.

2. PREFERRED STOCK: Preferred stock is a financial instrument that represents ownership in a corporation. Holders of preferred stock own a portion of the corporation. They have no voting rights. In the event of a liquidation of the corporation, the holders of preferred stock have a superior claim over the firms’ assets compared to the holders of common stock.

3. BONDS: A bond is a debt instrument that is issued by a corporation or the government in order to raise money from the public. Holders of a bond are merely lenders who have lent money to the institution that issued the bond under the terms specified in the bond issue documents.

Some examples of bonds are government securities, corporate bonds, commercial paper, treasury bills, strips etc.

4. FUTURES: A future is a financial contract in which the buyer agrees to buy an underlying financial instrument on a certain future date for a certain fixed price.

5. OPTIONS: An option is a financial contract that gives its buyer the right, but not the obligation, to buy an underlying financial security at a certain price, on or before a certain date.

6. MUTUAL FUNDS. A mutual fund is a professionally managed investment fund that pools the money of several investors and makes investments on their behalf. Individual investors in the mutual fund own ‘shares’ in the fund and receive a return in proportion to their investment.

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