Most people lose money in the market due to a lack o due diligence, basic understanding of risk vs reward, and trade with emotions, resulting in huge loses of money.

1. Psychology

New Traders

New traders come to the market with a lack of skills driven by greed and expect unrealistic expectations on returns, often impatient, looking for constant gratification, and have a hard time managing stress and emotions. Never use a trading plan or exit strategy, and never teach themselves enough of the game, resulting in a few wins in the beginning and ultimately suffer huge loses in the end.

Experienced Traders

Experienced and wise traders are realistic about returns, understand there is a learning process every trader must go through, take the long term point of view, and are patient. They never get into an investment or trade without a investment/trading plan, and manage stress. Rich experienced traders, never stop learning about the markets, for the markets are always changing and the trader must always be adapting.

2. Risk

New Traders

New traders seek instant gratification and are gamblers betting money they cannot afford to lose. They buy the green, near the top, for the fear of missing out overtakes them and they trade with emotion and not the mind. New traders hedge profits as the #1 priority and have no concept of the risk/reward ratio, and therefor never have an exit strategy if the trade goes bad.

Experienced Traders

Experienced and wise traders look at investing/trading like a business and run it like a business, seeing and thinking of themselves as a businessman, and carefully approach and control trading size to limit risk, for they know managing the risk is the #1 priority, and lock in profits while they can.

3. Methodology

New Traders

New traders often win the first couple of trades and then bet the farm, lose, give up, not wanting to learn the process, because they skip around to method to method not giving time to find the method that works best for them. They trade off opinions and hype, and try to predict the market, not understanding probabilities. They trade against trends, follow emotions, and never cut loses when the trade goes south, hoping it will come back up, often resulting in cutting profits short and cutting loses to late.

Experienced Traders

Experience or wise traders persevere until they successful, not letting loses get to them for they realize they first must learn the process and find the method that works best for them. They understand never to trade of opinions but probabilities, and never try to predict the market. They follow the trends, and try cut as much emotion from their trading as possible by following a proven method or system, and cut loses when the trade goes south by following a exit plan, and let profits run.

Summary

Investing and trading takes time to learn the system and find the method that works best for you. You have to take the long term point of view, either investing or day trading it takes time to learn and gain a good fundamental knowledge of the market to create a foundation. The weak usually get shook out and the the strong persevere, grow, learn, and become the experienced traders and investors, going on to make their fortune.

“Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you.” ~ Larry Hite