Stock markets are known for their volatile moves. If there are abnormal returns, there are abnormal risks also. But in spite of all the risks involved, it is the only place which can give exceptionally good results, if handled properly. So, what are those top reasons because of which one loses money in stock markets. Experience shows that market volatility is NOT the top reason for losses in stock markets. The so called black swan event occurs once in a while but traders lose money, almost every day! Let’s see why it happens.
REASON NO 1 – IRRATIONAL EXPECTATIONS
Talk to any new trader. What is his expectation of monthly returns from the market? If he is not an experienced trader, he will say I am happy with 25% returns per month. Now, for him this is a very very normal return because he is treating stock markets not like a business but a place to get rich, quickly. This very expectation will force him to trade in such a way that he will lose almost everything in few trading sessions! Yes, his lose is somebody else’s profit. Now even 10% per month means you are doubling your money every ten months!
Show me a business where you can do this. Show me a business where you can even get 50% returns every year. Extremely difficult. So, if we have highly abnormal expectations of profits from stock markets, we are BOUND to lose money. Because than, we will be enticed by so many SHARKS in the market promising moon with their so called research and software. Ask them, if they are able to generate such returns, why should they share their research with anybody else. Why then all the big business houses will do anything else?
So, we need to keep expectations that are achievable. And our experience shows, that if you are good with your strategies, 4 to 5 % monthly return is achievable but that doesn’t mean it will be consistently there for all 12 months! Still there will be months when you are not able to achieve this. Hence a yearly target of anything between 24% to 40% can be termed as a rational expectation. Yes, still it is very high compared to your fixed deposit in a bank.
And in the end, we will share a calculator with you which will show you, where will your initial investment reach in ten years from now, even if you achieve 24% returns per year.