We will see both the question that why people loose money in the stock market and why and how people succeed in stock market.
Firstly, we take Why people loose money in stock market?
Investors can lose quite a bit of money if they don't understand how unpredictable share prices affect their wealth. In the simplest sense, investors buy shares at a certain price and can then sell the shares to realize capital gains. However, if the share price drops dramatically, the investor will not realize a gain; in fact, the investor will lose money. The stock market being a dynamic place the prices of shares go up or down. Take for example suppose that an investor buys 1,000 shares in a company for a total of Rs.1, 000/-. Due to a stock market crash, the price of the shares drops 75%. As a result, the investor's position falls from 1,000 shares worth Rs1, 000 to 1,000 shares worth Rs.250. In this case, if the investor sells the position, he or she will incur a net loss of Rs750.• Investors need to keep track of the company that they are invested in. If there is some reason due to which the company may not be able to survive then you should not be a part of that company. But if you still continue to own part of such a company then you lose your money.
The way the stock market works is that there are a huge number of companies represented by stock investments, something like hundreds of thousands. Some are tiny and high risk with no money in cash, and some are big and high risk, and some are big and low risk. The low risk companies have good management, lots of cash reserves, and a lot of products selling well. It takes time for products to make money, during this time the stock can go up and down. If you purchase the stock when it is up and you don't know anything about the stock market and the stock goes down temporarily, then you could panic and sell without knowing the facts, then the stock goes back up, but you have already and lost your money.Don't invest in what you don't know. Don't risk money you can't afford to loose. Know the investments you are buying--research, read, and study them before you buy them, or you could end up loosing a lot of money fast. Individual stocks require a lot of time and attention, and knowledge if you are going to keep them comfortably for the long term. An alternative would be to research a simple money market account or an income mutual fund. Sometimes it takes years to make money on individual stocks; if you are already real old it doesn't usually make sense to buy them at all.
Secondly, why people succeed in stock market?
Proper knowledge to Pick Your Market Investment Strategy:
Decide on the time frame and the general strategy of your stock market investment. This step is very important because it will dictate the type of stocks you buy. Suppose you decide to be a long term investor, you would want to find stocks that have sustainable competitive advantages in the market along with stable growth. The key for finding these stocks is by looking at the historical performance of each stock over the past decades and do a simple business S.W.O.T. (Strength-weakness-opportunity-threat) analysis on the company.
If on the other hand you decide to be a short term investor in the market, you would like to adhere to one of the following strategies:
a. Momentum Trading. This strategy looks for stocks that increase in both price and volume over the recent past. Most technical analyses support this Market trading strategy. My advice on this strategy is to look for stocks that have demonstrated stable and smooth rises in their prices. The idea is that when the stocks are not volatile, you can simply ride the up-trend until the trend breaks.
b. Contrarian Strategy. This strategy looks for over-reactions in the stock market. Research shows that the stock market is not always efficient, which means prices do not always accurately represent the values of the stocks. When a company announces bad news, people panic and price often drops below the stocks fair value [i.e. it is cheap]. To decide whether a stock over-reacted to a piece of news, you should look at the possibility of recovery from the impact of the bad news. For example, if the stock drops 20% after the company loses a legal case that has no permanent damage to the business's brand and product, you can be confident that the market over-reacted. My advice on this strategy is to find a list of stocks that have recent drops in prices, analyze the potential for a reversal (through candlestick analysis). If the stocks demonstrate candlestick reversal patterns, I would go through the recent news to analyze the causes of the recent price drops to determine the existence of over-sold opportunities. [Most people make the mistake of buying when prices are high and selling when they are low this method allows you to invest in the stock market when prices are low and sell when stock prices are high.
Research Individual Stock Market Selections
Conduct market research that gives you a selection of stocks that is consistent to your investment time frame and strategy. There are numerous stock screeners on the web that can help you find the right Stock Market investments to fit your needs.
Diversify Your Stock Portfolio
Once you have a list of stocks to buy, you need to diversify them in a way that gives the greatest reward/risk ratio. One way to do this is to conduct a Markowitz analysis for your portfolio. This type of market analysis will give you the proportions of money you should allocate to each stock. This step is crucial because diversification is one of the free-lunches in the investment world.
These three steps should get you started in your quest to consistently make money in the stock market. They will deepen your knowledge about the financial markets, and will provide you with a sense of confidence that helps you to make better trading decisions for your stock market investment portfolio.
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