Trading stock is more difficult — many accounts disappear. While the amount is under debate, some studies have indicated that a high percentage of retail traders lose money in financial trading (e.g., between 70% to 95%, with serious disputes about these numbers[1][3]. In this post, we will discuss the major reasons for which stock trading is so tough and why most of retail traders are not able to make consistent profit.
Psychological Challenges
Hence, psychological part of trading failure is one of the leading reasons. Human emotions are the most significant thing that makes traders make poor decisions in stock trading because time is something rapid.
Fear and Greed: These are the worst emotions that bear upon traders fetching crooked trading decisions. Fear may lead traders to exit winners too early or hesitate before entering what could be good trades. Greed, on the other hand can result to overtrading or holding onto losing positions too long[4].
Unrealistic Expectations: As beginners, many traders come to the market with unrealistic expectations of getting rich quick and easy. Such an attitude results in over-assumption and ultimately, huge losses[2].
Lack of proper Education and Strategy
Lack of knowledge: A lot sapling investors jump into the trade without knowing how markets work, technical & Fundamental analysis. This ignorance puts them at a serious disadvantage4.
No Trading Plan: Prone to success, the act of trading actually requires a solid strategy and risk management. Most retail traders simply do not use or follow a trading plan, making their trades more likely to be random and driven by emotion[1].
Market Complexity and Competition
High-Frequency Trading Algorithmic and high-frequency trading were added to the arsenal, hence making competition greater in capital markets. More sophisticated trading systems are always a hurdle for retail traders[5].
Short-Term: Financial markets can be highly volatile in the short-term. This volatility can easily knockout traders who are undercapitalized or don’t manage risk as well[3].
Undercapitalization and inadequate Risk Management
Not enough money — this is huge, many traders start as retail, therefore with small accounts and of course they look to operate at great risk in their eagerness to try and increase their capital the fastest way. Which often results in account blow ups [2]
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