Reasons Why New Investors Lose Money in Stock Market

Here are the top reasons why beginners lose their money in the stock market investment:

 

1. Non-Diversification of Stocks

New investors often put all their money in the stock within the same industry. However, they don't consider that every industry reacts to different trends and factors. This increases the exposure to losses if the stock declines. Investing in companies from different sectors allows beginners to reduce the losses.

 

2. Following Hot Stock Tips

Beginners lose money in the stock market because they try to follow random tips from family, friends, or TV experts. They are not informed about how to value a business and the price of its stock. New investors must take the time to do their market research and follow news of the stocks they are trading. This is also important when learning how to increase chances of IPO allotment.

 

3. Having Little or No Patience

New investors tend to prioritize short-term events and ignore long-term probabilities. This causes investors to jump to conclusions and constantly change strategy. They also terminate their winning trades early and let their loss transactions accumulate. This is why practicing patience is important.

 

4. Trading Strategy

Experienced investors and traders put their strategies into action to book returns. Beginners, however, do not follow a set trading plan. You must enter a trade with a clear strategy in place and be aware of your precise entry and exit positions to avoid losses.

 

5. Hanging onto a Losing Position

Seasoned investors and traders willingly exit the trade or transaction when it is going against the market while booking a small profit. New traders and investors, however, get fixed when a deal goes against them. The obvious result of this is the increasing losses and significant capital depletion.

 

6. Timing the Market

The Indian stock market is volatile and trying to time the market can mess up your trading strategy. When it declines, you can get anxious and become more likely to book losses. A technique called rupee cost averaging allows regular investing despite how the market is performing.

 

7. Emotional Trading

The stock market is always driven by the market trends and not by the emotions. The new investors, however, always trade and invest with emotions like denial, anxiety, greed, fear, panic, and excitement. This is when having a Trading Plan is helpful.

 

How to Reduce Losses in IPO Investment

Before you learn how to reduce IPO stock market losses, you must understand the meaning of IPO and 'what is subscription rate in IPO?' IPO refers to the process when a company decides to raise funds by offering its shares to public investors. Subscription Rate is the number of bids received for each investor category divided by the total number of shares allocated for each category.

 

How to Minimize IPO Investment Losses

• Recognize the Industry: Evaluate a company's competitive position, market dynamics, and growth prospects.
• Examine the Market State: Erratic markets cause IPOs to be delayed or to perform poorly. A market with positive sentiment ensures successful returns.
• Lock-Up Period Expiry: Pay attention to the dates on which insiders' and early investors' lock-up periods expire. Further selling pressure impacts the stock price when lock-ups expire.

Following these investment tips also help answer 'how to increase chances of IPO allotment'.

 

Conclusion

There are many reasons that lead to stock market losses. Beginners need to be cautious and avoid these mistakes to make trading a profitable investment. You must also learn key concepts like what is subscription rate in IPOs and how to increase chances of IPO allotment for a well-disciplined investment strategy. Equip your trading strategy with the right tools and knowledge by opening a free demat account with Almondz Trade.