Causes of Failure in Stock Trading

[Andy Rodic]

Penny stocks have been growing in popularity in recent years. In the past, it was considered as bad, but changes in the law and the way the stock exchanges work has created hope
among investors. Penny stocks can
make someone rich. At the same time it can also make one poor. People lose a
lot of money because of market crash. Although a lot is out of investors’
control, there are still instruction that can be learned when you experience a
market downturn.

Liquidity

When penny stocks lack much liquidity, it leads to two problems: first, there is the possibility that you won't be able to sell the stock, because it may be hard to find a
buyer for a particular stock, and you may have to lower your price. Second, low
liquidity levels provide opportunities for some traders to manipulate stock
prices. They buy large amounts of
stock, hype it up and then sell it after other investors find it attractive.

Inability to cut losses

Day trading brings 2 or 3 point gain. So the trader gets excited to book small profits quickly. But when any one of their stock holdings drops 5 points: the same traders find themselves unable to cut losses rapidly, so they
wait for a rebound. In fact, even when their stocks drop by larger points, the
majority short term investors become hesitant to book losses. A 20% loss on a
single position wipes out the profits that a trader makes on 10 winning
transactions, each returning 2% gains.

Entirely selling a winner

When someone makes a profit, it's only usual to want to sell and take that profit elsewhere. On the other hand, a lot of guys look at their losses and cling to them in suspense they'll regain to even. The above plan
actually makes you close to loss and far from win.

Long term growth

It’s likely to have the ability to hold on to a stock long enough, it may just bounce back. There’s opportunity cost here.

Prejudiced Recommendations

There are a number of micro cap companies that pay individuals to publicize the company stock in different media, like newsletters, financial television and radio shows. You may receive spam email trying to
persuade you to purchase particular stock. If the investor get influenced by
them and invest in those companies it can bring much loss to them. Ensure that
any press releases aren't given falsely by people looking to influence the
price of a stock.

Lack of knowledge when to sell

It is one of the most important thing to learn how to cut your losses. A cost basis shows whether you’ve made money or lost money on a stock. If the current value of your portfolio shows that you have lost money
and it looks like it may drop further, it’s time to take losses. You really
don’t want to lose more than you can bargain for. Many investors decided to
hold last year when they shouldn’t have and were wiped out.

Blindly following a broker

It is good to take the help of a broker to know the company information. But it is not wise act to follow his words blindly. You can make your own research work. You should listen to your broker. But you should also
question him. Because at his core, he's a salesman, so he's trying to sell you
something. Press him on details. Why is this stock the next great stock?
Did he invest his own money in it?

Learning how to “trade” during a bull run

The majority ordinary traders are
bitten by the stock market bug during bull markets. They purchase inflated stocks at peak prices, pursuing
penny stocks at higher and higher
prices while riding the upward momentum of the bull. They buy stocks
indiscriminately, without regard to stock fundamentals, quality or price. As a
result they suffer later on.