Motley Fool - Why People lose Money in the Stock Market


found this interesting post



Many people have lost an awful lot of money in the past twelve months. Why? They didn't do sufficient planning before deciding to enter the stock market. They didn't appreciate the rules of the game. Consequently many have left the market altogether and may only return when it hits its next temporary peak, ready to shaken out again a short time later. Many may never
return at all. It's the classic case of buying near the top on the promise of ever-rising prices and selling at the bottom because all the market ever
seems to do is go down. This has happened countless times before and will do again. Perhaps it's time to introduce an investing licence, meaning that you
can buy shares once you have learned the ground rules. Here are some for starters.

Know who you are

I think there are two broad types of person involved in the stock market. On the one side there are traders looking to ride a short-term trend and simply
go with the flow in the hope of making a quick profit. Then there are investors who believe they can take advantage of the situations where the
market price is either too high or too low in relation to its long-term prospects. Some people try to mix the two qualities but most would be better
suited by sticking to one camp or another. Which are you? This will determine which strategies you follow and what you do in situations like this when the market has fallen sharply. A trader will cut his losses but an
investor will look at the falls using long-term goggles.

Know where you are

What's your overall financial position? How much can you afford to invest, or do you need to get out of debt? How much do you know about finance and investing? Should you find out more before you take the plunge? Perhaps you need to practice with a notional portfolio before risking your own money.
Know what you want

What are you trying to achieve by taking part in the stock market? If you're simply looking to make as much money as possible in as short a timeframe as possible you're asking for trouble. The higher you aim the further there is to fall if you miss the target. Many individuals get seduced by the promise of high returns and don't appreciate that this is only one possible outcome.
The expected range of returns from a high-risk strategy can be very large. In fact your average expected return could be lower tha a low-risk strategy. Matching the stock market average over the long term is no bad

There are no guarantees in investing, or trading for that matter. But by getting your house in order and establishing a clear strategy from the outset you will dramatically increase your chances of being someone who benefits from the long-term growth of the stock market, rather than someone who mutters about how they will never go near the stock market again.

I made the mistake of filling out an internet form offering a free report on oil prices and after that the phone calls started from more brokers than I can remember and this went on several times a day for several weeks, I managed to put a stop to most of them however one chap who is featured in a video on this site kept ringing back and after several more weeks persuaded me to get involved with CFD trading and like a fool I trusted him and gave it a try, what a very expensive mistake!