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Posted 14th December 2020

6 Common Reasons Why New Stock Market Investors Fail

While trading has been made easier than ever thanks to all the tools and options we now have at our disposal, it is still far from easy.

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6 Common Reasons Why New Stock Market Investors Fail

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While trading has been made easier than ever thanks to all the tools and options we now have at our disposal, it is still far from easy. It is estimated that out of all first-time investors, 90% aren’t able to make any kind of profit with the stock exchange. Over time, 80% end up losing money, 10% barely break even, and only 10% succeed.

These can be tough statistics to swallow, but you also have to understand that many investors fail due to their own actions, or lack thereof. Making money with the stock exchange is not guaranteed, but we’ve seen enough people succeed to know that there is a clear method that you can use to make consistent gains. You just have to get far enough in your journey to discover and apply it. Let’s take a look at some of the most common reasons why new investors in the stock market fail.

Overlooking Robo Advisors

A lot of people will either go in cold or go with a regular advisor before they use a robo advisor. They might be asking themselves how a bot could actually help them with picking stocks, but there are many reasons why robo advisors are such a great tool for new investors.

First of all, they’re cheaper than your traditional advisor but, more importantly, they can sometimes be more accurate as well.

Robo advisors have greatly evolved over the years, and they don’t all have to be on auto-pilot. You can use them to simply look at some of their decisions and see how they make sense. Some will even have training and learning resources which could be invaluable for anyone who’s just getting started with trading.

This greatly depends on which robo advisor you go with, however. If you want to find the best Roto advisor for you, we strongly suggest that you check out the review by WealthSimple. This will give you some of the best options available at the moment, and a quick overview of the features of each. You’ll be able to see which ones have a larger educational component and also some background information on how they were established and when.

They Don’t Have the Basic Skills

The truth is that investing is not for everyone, and some people may not realise which type of skills are needed to be a good trader. There are also some personality traits that all successful traders tend to share.

One of the most important traits for any trader is patience and willingness to learn. Those traders who take the time to really study the craft before they go in are already doing better than the majority of new traders out there. You need to at least have the patience to learn how to read financial statements, candlestick charts, and use technical indicators.

Traders need to have stellar analytical skills and an eye for research. They need to be able to gather and process large quantities of information fast and make a correlation. These split-second decisions can make all the difference in an important trade, and those who can assess and process the information the fastest are the ones that are going to end up succeeding.

Another very important trait to have as a trader is focus. Unless you’re able to stay focused on your monitors all day, you can forget about being a successful trader, that is if you were intending to take it seriously. A trading day can have but a few actions, but most of what will happen will be during those times when you wait. Focus will also allow you to cut through the noise and zero in on the information you really need to make a trade.

But probably the most important trait of them all is control. There has never been a successful trader who lacked self-control, so if you’re a compulsive person by nature, this may not be the best field for you.

There are also strategies where you will need to take some initial losses. Figures on candlestick charts may also take time for their effects to be reflected in the trend. Those who lack control will tend to throw everything out the window and go based on “gut” during these times. This is the worst reflex you can have and one that will ensure that you’ll never succeed long term.

Lack of Knowledge

Lack of knowledge is extremely common among traders, even those who have been at it for years. While some may be able to get by for a while and get lucky from time to time, they usually end up hitting a brick wall.

When you talk with people who trade regularly, you’ll often hear them talk about some of the winning trades they may have made. But when you dig deeper, you start realising that they knew little to nothing about the stock. They may have made a move based on some news or report. Some will even admit that they have no idea how to read a basic chart.

Someone who has real knowledge of investing will behave very differently. They will understand how important it is to have an actual plan. They will make sure to verify movements on a stock using indicators even if they’re sure of what they’re seeing. They will know how to use stop losses correctly to minimise risks. These are all small details that add up and make you a better, more disciplined trader. These are also what’ll help you to eventually become part of the 10%.

Having Unrealistic Expectations

You also have those who have wild expectations and a false image of what the stock market really is about before they start. Firstly, they think that they will be able to just hop on their computer and start day trading as they see in the movies. While not all countries will have minimal fund requirements in order to operate as a day trader, most brokers will still require that you have a significant amount in your account to get started. This can be anywhere from $1000 to $25,000.

Others think that they will be able to make trades solely based on what their favorite TV advisor says or by checking the news. While it is true that news and global events can influence markets, it’s not as simple as it looks.

Knowing when to enter trades can be much tougher than you imagine, and trends can sometimes take time to manifest. You also have no idea as a new trader how much news will impact a certain stock.

There’s also the possibility that another news negates the effect of the previous one. You also have to look at the whole picture of a company. While the earnings report might seem better than what was expected, it doesn’t make up for bad management, crippling debt, or semester after semester of bad decisions.

This is why trading the news can’t be the crux of your strategy. If you learn how to use them in conjunction with other tools, however, you will start to act like a real trader and be able to make better decisions. But you can’t expect to make consistent gains simply by throwing caution to the wind.

Not Using the Proper Tools

Trading is a craft, and just like any craft, you have to make sure that you have the right tools on hand. You may have the best plan and the best people helping you, but if you try to build a house without nails and a hammer, then nothing good is going to come out of it.

This is why it’s important that you have the proper setup and tools at your disposal if you want to be successful. This includes things like the right trading platform and the right software. You also need good hardware and a solid internet connection. Some will decide to invest in a multi-monitor setup later on. This is up to you, but know that the better equipped you are, the better you’ll be able to make decisions.

Going in Too Strong

While you’ll have less return potential if you start with small amounts, you’ll need to have the discipline necessary at first. You also have to at least have a basic money management strategy before you jump into any trade.

If you do something as simple as only spending 10% of your capital on any trade, you’ll be able to significantly cut your losses. Another benefit of taking this approach is that you’ll never be too emotionally invested in your trade. You’ll be able to stomach losses and stick to your strategy. This is often all that it takes for a trader to go from losing or breaking even to making steady gains.

These are just a few of the most common reasons why people who get started with the stock market fail. Avoid making any of these mistakes yourself by using the proper resources and adjusting your strategies accordingly if you want to succeed in the long run.

Categories: Finance


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