WHO WINS IN STOCK MARKETS
Majority loses money in stock market, information flood out of internet makes it a generally known truth. But data-based researches help us to convert information into believe, helps improves our perception and sometimes enable us to understand.
Why?
Different researches conducted by Brad M. barber, Graduate School of Management University of California, and his colleagues on the data received from Taiwan stock exchange and other sources. They concluded following observations during various researches:
- Analysis of the day trading of hundreds of thousands of investors over a seventeen-year period showed that 60% of day traders left after only one month, remaining quitted, after a period of 3 years only 13% left, after a period of 5 years only 7% left and in future only 1.6% of them were able to earn more than fees paid. (2017)
- They also concluded in data-based research that value of around 2% of GDP is equal to loss of individual traders.
- Individual investors, incur huge loses in active trading, who mostly hold common stocks. (2000)
- Stock trading was reduced by 25% when lottery was introduced in Taiwan in 2002. (2009)
Research published by Calvet, L. E., Campbell, J., & Sodini P. in 2009 in The quarterly journal of Economics states that :
- “Investors tend to sell winning investments while holding on to their losing investments.”
Mr. Kumar, University of Miami, in 2008 published a research conducted on data collected from large brokerage houses says:
- “Socio-economic and psychological factors which arcitiese known to influence lottery purchases lead to excess investment in lottery-type stocks. Results suggest that due to our fundamental desire to gamble, the link between socioeconomic dynamics and the stock market behavior may be stronger than currently believed. Of course, this should not come as a surprise as psychological, social, economic, religious, and political identities of an individual supersede her identity as an investor.”
Sankar De , Naveen. R. Gondhi and Bhimasankaram Pochiraju in 2010 found that:
- “We find that the sign of the outcomes of recent past stock trades, where a positive sign indicates a profitable trade and a negative sign an unprofitable trade, influences the current trading decisions of investors strongly. Further, the influence of the sign of past trades is significantly stronger than the size of the gains or losses from the same trades. We also find that, on an average, trading under the influence of the sign of past trades consistently results in decline in profits for the investors. Our findings are consistent with a behavioral explanation suggested by recent research in experimental psychology that the investors are more sensitive to the affective intensity of a stimulus than to its magnitude.”
Through these researches we can point out some important facts.
- Only 1.6% of participants are successful in trading.
- Retail trader accounts to loses equivalent to 2% of GDP (a huge loss).
- Lot of traders enters stock market with a perception of lottery.
- Participants tend to hold on their loses but book profits comparatively earlier.
- People’s decision is highly impacted by their last trades.
These facts show that majority loses and loses huge amount because of their wrong focus on earning huge money in short time span as they consider trading as lottery, wrong method of cutting profits in place of loses and because of wrong psychological process of remaining influenced from losses and profits of latest trades. We will go in details of these set-backs and will discuss upon removal of these errors and transition to stress free trading in Trading Psychology section.
By Founder
Published on 2022-12-18
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