Why You’re Losing Money in the Stock Market
You’ve read every press release. Every filing… Every single news article…
You’ve also learned how to read a stock chart. You know how to spot ideal buying opportunities.
But you’re losing money.
Not on every trade. But you’re losing just enough to cancel out the occasional big winner. And every winning streak—no matter how long—is punctuated by a sharp loss. In short, you’re spinning your wheels. No matter how many correct moves you make, you can’t seem to consistently grow your brokerage account.
When painful losses begin to take their toll, many traders blame a gap in their knowledge for their failure. You’ve probably had a similar reaction when dealing with the aftermath of a losing trade:
If I had only learned how to use that new indicator I read about last week, I probably would have avoided this stock…
However, what you don’t know about the markets isn’t the problem. You can spend every waking minute studying investment techniques and still lose money.
The truth is, the only way to win with stocks is to completely alter your mindset. It all comes down to one idea: The market can do virtually anything at any time.
This simple fact is what renowned trading psychologist Mark Douglas calls the market’s most fundamental characteristic. Douglas believes that so many traders fail because they can’t reconcile market action that completely contradicts their knowledge and beliefs.
All signs might lead you to believe that a stock is about to break out. But when the breakout fails and the stock moves lower, many traders have trouble conceding that the market has determined that their bulletproof trade idea is wrong.
Here’s a quick story I adapted from Douglas’ book Trading in the Zone to show you what I mean:
A commodities trader with decades of experience was having trouble in his transition from trading on the floor to trading in front of a computer screen. So, he asked one of his younger analysts to help him interpret some technical indicators.
One morning, the young analyst was explaining a system he used to identify support and resistance. He then plotted these key levels in the soybean market. After projecting the high and low of the day, both the analyst and the trader watched soybeans begin to move lower.
Skeptical of the quickly approaching support level, the experienced trader asked the analyst if he was certain that the market would stop falling and reverse higher.
“Absolutely! This is the low of the day,” the analyst said.
The trader then picked up the phone and called the soybean pit. He placed an order with the clerk to sell 2 million bushels at market.
Within just a few seconds, the price of soybeans dropped 10 cents a bushel—well below the young analyst’s projected support level.
“Now, where did you say the market was going to stop?” the experienced trader asked. “If I can do that, anyone can.”
As you can see, the young trader was so confident in his knowledge that he completely dismissed the idea that the market could move against him. That’s the kind of thinking that leads to big losses. If the young analyst from our story had put on a new trade at his “absolute” support level, he probably would have stubbornly held his position as the market moved against him.
He ignored the simple fact that the market can do virtually anything at any time. And it could have cost him a lot of money…
If you successfully alter your thinking and accept that the market will determine whether you are right or wrong, you will have no problem immediately cutting your losses as a trade moves against you. You’ll leave your ego at the door and forever forget about any trade that you once would have considered a “sure thing”. Most importantly, you’ll begin to steadily and consistently grow your trading account—with any catastrophic losses offsetting your much-deserved gains.
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