Hey! Its Sasha Evdakov founder of Rise2Learn and in this video episode I want to talk to you about the famous phrase of Why 90 Percent of Stock Traders Lose Money.
There are a few different reasons why this statement came about. One of the reasons is that people think very directional or they focus very much on what they think and they stick to it they won’t change their mind, they won’t go up out of their comfort zone.
For example if you’re a trader who only thing directional buying low and selling high or on the short side selling high and buy things back lower then that’s the way you’re going to try to trade, you’re going to trade that directionally and you have really 50-50 chance at getting it right or maybe a 33.3 chance if the stock standstill.
Basically can go up, it can go down or you can stay where it is but really you have a 50-50 chance at getting it right. Now the problem here is people get impatient. So even if you do get things right you might be impatient and you might get out way too soon or the stock may have some confluence behind it, dips a little lower and then you get out and then stock continues higher.
Again you’re getting out too early and you don’t have the patience.
Finally the third thing is that people are hoping and praying. If the stock actually tanks a little bit lower and then it goes down even further you know you’re stops you know where you’re comfortable with you’re having trouble sleeping at night then all of a sudden people start hoping and pray and in this business hope and prayer does not work well that works great for a lot of other things and other industries and other areas of life however in the stock market you need to eliminate hope and prayer and you need to stick to a proven strategy.
You need to stick to the numbers you need to stick to your risk and reward, your plan and your stock trading system that works a lot better. Now if you’re trading options and you don’t understand time decay then you’re probably losing money every single day and you definitely want to stop trading options immediately until you understand the time decay behind option premium.
If you’re buying something like a long put or a long call after the stock either going up or down then you’re probably losing money every single day behind options. Again it’s something that’s just losing money and decaying overtime and this is what a dumb money does not the smart money, the dumb money does.
Don’t just buy a long put or a long call just in hopes that the stock move in on one direction or another this is not with the institutional doing this is not what’s the professional investors do. They trade options spreads they trade things like butterflies, they trade things like calendar spreads maybe iron condors, all kinds of different things but they put the time value in their favor not against them.
Now you guess of course there are certain instances to trade long puts and calls but in general if you don’t understand time decay and you’re trading options don’t trade options because that’s what the dumb money does.
In addition why over ninety percent of stock traders lose money is because they’re looking for the Holy Grail indicator. They’re looking for the Holy Grail stock chart or even the newsletter that’ll make them a fortune, they’re looking for somebody to send them are alerts on what to trade or they’re looking for this magic indicator and they have their whole chart system set up like a circus.
It’s so busy out there they have maybe 20 indicators on there, they might have the parabolic sword, they might have the Bollinger Bands, the stochastic, the Mac. All those things and they don’t know what to trade off of them.
I mean what you look at when you have a circus for a chart you really don’t know so that’s what you got to remember is that keep things clean and simple. The only true indicator behind trading stocks is the one that you create, the system that you create for yourself and the methodology behind the way you trade.
The only way you’ll be consistent is when you find something that works for you and then create and develop a system around that based on your risk and reward strategy. All these reasons add up to why ninety percent of the stock traders lose money and eventually it bankrupts them because they over leverage on their account they try and get their money back and maybe they start feeling confident and they don’t understand the principles behind the money management and then again their account becomes toast and eventually things lack and they’re gone trading.
For you to be able to trade for a lifetime or make investment or grow money from your money, you want to make sure you have a good proven risk and reward strategy. You can be a horrible trader but if you have a good risk and money management strategy you will survive for another day, another week, another month and another year.
Stick to your rules stick to your system and that way you can continue moving forward now of the 10 percent that do survive in trading they make a fortune because of the ninety percent of the other traders that lose their fortunes so all the money that the ninety percent of the trader lose, all that 10 percent that’s remaining of that profitable traders gets that ninety percent of the money or the wealth.
This is what’s very attractive for a lot of people in the stock market, it’s because they’re reaping the financial rewards or the leverage power behind the stock market but really this is where it’s coming from, it’s from the ninety percent of traders that lose money.
Don’t get sucked in and become one of those ninety percent. In either case I hope this video was helpful to you.
Thanks for watching!
Remember to do what you love, contribute to others, and most importantly live life abundantly.