Are you still playing stocks like this? No wonder you're constantly losing money on stocks.

Many people enter the stock market full of hope, only to end up losing money on stocks. But the root cause of the problem often isn’t the market itself, but oneself. Let’s take a look at which bad habits cause your principal to gradually disappear.

The Three Major Psychological Traps That Lead to Stock Losses the Fastest

Blindly following the crowd without knowing what you’re buying

The most common mistake among retail investors is: not understanding what the company does, not knowing why the stock is rising, and blindly listening to news and following the trend to buy. This is not investing; it’s gambling. When the signs go wrong, you realize you’ve lost a lot, but it’s too late to regret.

Many people perform well in their main careers, but suffer heavy losses once they enter the stock market. The key is “not understanding but forcing to play.” Entering without doing homework is no different from buying a lottery ticket—yet luck won’t always be on your side.

Greed and short-term fantasies

The stock wizard Warren Buffett’s annual return is about 20%, but many retail investors fantasize about earning over 100% in a year. Under this mindset, they tend to make high-risk decisions, and losing money on stocks becomes an inevitable result.

High returns inevitably come with high risks. Many people understand this principle, but few can truly treat it rationally. When greed overcomes reason, losses are just around the corner.

Emotional out of control, led by mood

When stocks soar, you’re ecstatic; when prices fall, you immediately panic and want to cry. This gain-and-loss mentality is deadly—impulsively chasing highs when unable to bear risk, and selling good stocks as junk when scared. The final result is buying high and selling low, making stock losses a normal occurrence.

The Four Technical Mistakes That Make You Lose More as You Trade

Slow news flow, easily being fooled

Retail investors have limited sources of information and are often a half beat behind institutional investors. By the time news is released, professional institutions have already pocketed their profits. When you buy in, you’re actually taking over the previous holders’ positions. Those news reports are likely traps designed to trap retail investors—given the many professional institutions and major players watching the market, where’s the cheap stock for us to pick?

Frequent stock switching, ending up with no gains

You did your homework and chose good stocks, but when they rise slowly, you can’t resist short-term trading. As a result, you get caught and lose a lot, and even the stocks you researched carefully become too risky to buy. In the end, you can only watch them rise helplessly. This “fickle” trading style greatly increases transaction costs and risks, making stock losses inevitable.

Not understanding the trend, not knowing when to stop-loss

Not knowing whether the market is bullish or bearish, lacking a strategy, holding on during rises and falls, ending up “long-term trapped.” Worse, refusing to admit losses, continuing to hold losing positions—playing stocks this way makes it easy to wipe out your principal.

Full position trading, exhausting yourself mentally

The stock market has bull and bear cycles. During bear markets, over 90% of stocks have no profit opportunities. Yet many retail investors refuse to rest and insist on full positions. The result is mental exhaustion, being trapped and discouraged, and when a rebound occurs, they dare not act, missing out on profit opportunities.

The Way Out: Assess the Situation Before Acting

Do homework, clarify your investment goals

Really understand what you’re buying—what the company does, whether its finances are healthy, dividend policies—and then decide whether to buy. Only then can you know when to add positions or exit. This is the first step to reducing stock loss risks.

Set risk-reward ratios; stop-loss is more important than take-profit

If a stock is trapped and technical analysis indicates it can’t rebound, you should decisively sell and exit. If there’s still a chance, reduce your holdings and set a new risk-reward ratio—that is, the potential reward versus risk ratio. Only trading at a favorable risk-reward level can yield higher returns.

The closer you buy near support, the lower the risk and the higher the profit potential; conversely, sell closer to resistance.

Choose an investment strategy that suits you

Dividend investing is suitable for long-term holders who leave their stocks untouched for 10–20 years and just collect dividends; general investment strategies aim for swing income, estimating stock price movements beforehand; short-term trading suits those who react quickly and can accept high-frequency trades. Choosing the wrong strategy makes stock losses inevitable.

Use index funds or algorithmic trading to reduce losses

Index funds diversify risk, with dynamic component stock adjustments and automatic elimination of underperformers; algorithmic trading uses computers to avoid cognitive biases. Both methods can help reduce the probability of losses to some extent.

Five Signals Before a Crash That Can Save Your Life if Recognized

1. Index falls below the 250-day moving average — a dangerous signal indicating a transition from bull to bear market
2. Index fails to reach new highs — long-term oscillation within the same range, indicating a major correction is imminent
3. Retail investors are all discussing the stock market — when many retail investors are making money, it’s often a sign that institutional investors are preparing to exit
4. Major component stocks perform inconsistently — the 10 key stocks in the index diverge from the index performance, indicating high risk of decline
5. Index and VIX index rise together — investor sentiment becomes overly optimistic; once expectations are shattered, panic selling ensues

Final Advice

Retail investors lose money because of insufficient professional knowledge, weak technical analysis skills, and unstable investment psychology. But these are not unchangeable. As long as you recognize your shortcomings, choose appropriate strategies, and control your mindset and risks, you can find opportunities to profit from the stock market.

If losses do occur, don’t panic excessively. Adjust your positions in time, and there’s still a chance to turn things around. Remember: making money should be done honestly, and losing money should be clear and transparent.