Perhaps, the real question to ask is ‘How do you lose your $20,000 savings in the stock market?’. Some of the replies will be:
- Attempt to double your trading pot.
- Trade a lot.
- Trade using your full margin capacity.
- Trade with confidence.
- Trade intraday positions.
- Trade on ‘insider information’.
- Buy shares because they have reached a 52-week low.
- Buy shares that have rallied or are down 20% on the day.
- Trade on a friend’s tip or a hot share tip you’ve heard in a discussion forum.
- Don’t take losses. Take profits. Buy Yahoo.
- Attend a course titled ‘Learn how to trade and make money!
- Keep in mind that trading is minus sum, not a zero sum game. Fees make it minus sum. If this was not the case, then there would be no money to pay for CNBC, MSNBC, Bloomberg, Brokers, exchanges etc…etc… Ultimately, this is all paid for from investors money.
In terms of what makes me think I can make money:
- Profiting at the expense of participants making emotional decisions.
- Providing liquidity when assets are mispriced often causing reversals and profit opportunity.
- Aggressively trading using market orders rather than passively using limit orders therefore increasing the number of opportunities to profit rather than failing to trade because limit orders didn’t get hit or filled as the market moves away from them.
- In the very short term, being able to get a handle on buying/selling pressure, understanding some of the situations a market maker had his pants pulled down and needs to move the market to make up.
- In the longer term, recognising when someone is now holding something they don’t want and buying it off them.