Why Do Retail Investors Suffer Losses?

The stock market is a highly enticing market. It operates under a set of mutually agreed-upon rules, where transactions are made based on one's own decisions and judgments. Its margin system offers many opportunities for small bets with big returns, and it can indeed lead to substantial profits, even wealth. People only see this aspect before joining the market, thinking that trading is as simple as buying when the price goes up and selling when it goes down to make a lot of money. They calculate how much they could earn if they were fully invested by taking the highest and lowest prices, and then they become excited and agitated by the numbers they have calculated. It seems so simple, and then they confidently dive into the market to fight.

At this point, people do not realize that the financial investment market is not as simple as the charts on the screen in their eyes. They are unaware of what knowledge is required to enter the financial market, and they only see buying and selling. They may taste some sweetness at the beginning, and naturally, their confidence grows after the initial victory. They go in and out with full positions, and gradually they find that the market seems to always go against them, rising after they sell and falling after they buy. Moreover, the timing and entry points are excellent in the opposite direction, as if the market's reverse momentum is just missing their few transactions. This is the magic of the trading market. It is very easy to make a lot of money or even make a lot of money several times in a row, but it is extremely difficult to preserve profits and keep them for a long time. Everyone has had the experience of making money, and many people have had the experience of making a lot of money several times in a row within a period, but very few people have the ability to preserve profits. The final result is often disappointing, and this result is that only a few people in the market can profit, even make a fortune.

Advertisement

If the buyer and seller reach a transaction, it is generally a "win-win" result of "win-win" type, while in the futures market, the transaction of futures contracts is a "win-lose" type result. Therefore, under any circumstances, there must be some investors who will be in a passive situation of losses. If investors want to become long-term, stable winners in the futures market, they must establish investment principles that conform to market conditions.

There are many ways to trade in the market, and it is not an exaggeration to describe it as a variety of methods. Each trading method has the possibility of making a profit, which is also the charm of trading. This charm has attracted a large number of investors to participate in trading, and everyone thinks they can succeed. However, it is precisely because of the diversity of trading methods that investors find it difficult to find a suitable trading method, because the market has a trading method that is suitable for each stage and is making a profit. This makes investors have an illusion: there are opportunities everywhere in the market, and people are making money every day, but why can't they catch them?

Investors are easily lost in this illusion, and the root of this illusion lies in the fact that investors regret missing any opportunity and blame themselves, because they think they are capable of grasping this opportunity. The inclusiveness of the market is often the root cause of investors' inability to determine their own trading methods. In actual operations, the closer to the market, the more easily affected by various other factors, such as market atmosphere, the entry and exit of the main force, the shock of news, and the tug of the market trend, all of which may cause a trader to be unable to bear the psychological pressure and make the wrong judgment, which is the root of the loss. [Note: The way of trading lies in the choice between giving and taking. To do a good job in trading, one needs to learn to choose.]

There is a saying in the stock market that volume precedes price, which means that trading volume is more important than stock price. In the stock market, trading volume can not only reflect the changes in the number of transactions but also show the changes in the strength of the bulls and bears through the changes in trading volume. A large trading volume indicates a significant difference between the bulls and bears, while a small trading volume indicates a smaller difference.

However, studying trading volume alone is meaningless. It must be combined with stock price, time, and space for comprehensive analysis to draw a relatively correct conclusion.

The essence of trading volume is the difference between the bulls and bears.The larger the trading volume, the greater the divergence between the bulls and bears. However, the size of the trading volume depends on the weaker side between the bulls and bears. For example, at a price of 10 yuan, there are 2,000 long positions and 1,000 short positions, and the final trading volume is reflected as 1,000 hands.

Let's first look at a few common situations. I will not post pictures as I am typing on a mobile phone.

1. Limit-up without volume: The divergence between bulls and bears is small, and holders (potential bears) are unwilling to sell, with the bulls having an absolute advantage.

2. In an uptrend, the trading volume is very moderate without a significant increase: The bears are unwilling to sell, and the divergence between bulls and bears is relatively small, indicating a higher possibility of the price continuing to rise in the future.

In the stock market, stockholders are potential bears, while cash holders are potential bulls. If you hold stocks, the only action you can take to affect the stock price is to sell, regardless of whether you are bearish or bullish. Conversely, the only action cash holders can take to affect the stock price is to buy.

3. In an uptrend, the trading volume surges dramatically: As the price rises, the divergence between bulls and bears intensifies, and more and more holders are selling their stocks. Although the bulls may temporarily win, the stock price may be at its last gasp.

4. In a downtrend, the trading volume shrinks: There is a lack of buyers, not a lack of selling power from the sellers. The divergence between bulls and bears is small, indicating a higher possibility of the price continuing to fall in the future.

5. At the end of a downtrend, an increase in trading volume occurs: The divergence between bulls and bears increases, which may signal the end of the downtrend.

It is particularly important to note that an increase in trading volume at the beginning of a downtrend does not necessarily mean an upcoming rise.

When looking at trading volume, we also need to pay attention to who is in disagreement with whom. We should stand on the side of the independent institutions, rather than the side of the retail investors who follow the trend.To discern who has a disagreement with whom, the simplest method is to observe where the disagreement occurs.

For example, at the beginning of a downward trend, a high trading volume is a bad sign, as it is often the retail investors who stick to the old ways.

However, if the downward trend has already been established, and the market shows disagreement, that is, the trading volume increases, it is mostly a good sign. Because the disheartened retail investors never lead the change of trends.

There is a saying in the stock market: When the market is bad, low volume is hell; when the market is good, low volume is heaven; when the market is volatile, shrinking to low volume and then expanding is a positive signal.

Trading volume is an important auxiliary indicator for buying and selling, and human nature is fully reflected in the changes of trading volume.

When you are ready to get involved in a certain stock, and the stock has a sharp increase in volume, it may represent a huge disagreement between the bulls and bears. We can wait, wait for the trading volume to shrink, and the battle between the bulls and bears to have a result (the stock price chooses a direction) and then act in accordance with the trend.

The ultimate way to thoroughly understand is to find a few stocks and review the changes in volume and price over the past four or five years.

Using trading volume, you can understand the classic sayings:

Volume increases, price remains flat, the market is bullish. Volume increases, price rises, the bull market. Volume increases, price falls, a panic situation. Volume remains flat, price falls, the market is bearish. Volume remains flat, price rises, the market continues. Volume decreases, price rises, a divergence. Volume decreases, price remains flat, a consolidation situation. Volume decreases, price falls, the bear market.

In summary:Volume and Price Synchronization: This refers to the situation where the direction of stock price changes is the same as the direction of trading volume changes. When the stock price rises, the trading volume also increases accordingly, which is a sign that the market continues to be optimistic; when the stock price falls, the trading volume decreases accordingly, indicating that the sellers are optimistic about the future market, holding their positions and being reluctant to sell, and there is still a great hope for a turnaround and rebound.

Volume and Price Divergence: This refers to the situation where the stock price and trading volume show opposite trends. When the stock price rises but the trading volume decreases or remains the same, it indicates that the rise in stock price is not supported by the trading volume, and this upward trend is difficult to sustain; when the stock price falls but the trading volume increases, it is a sign of a future market downturn, indicating that investors are afraid of disaster and are selling off and leaving the market.

Specific Application Methods of Volume and Price Relationship:

Under normal circumstances, the mutual cooperation of volume and price can better represent the normal trend of stock price movement.

For the overall market:

If the overall market's trading volume continues to be strong, there will be abundant opportunities for individual stocks, and the operational idea is "to be full of vigor and strive to be the best, as long as there is news about individual stocks, it is a pie."

If the overall market's trading volume continues to be weak, there will be few opportunities for individual stocks, and the operational idea is "to be lenient in fleeing and strict in holding, as long as there is news about individual stocks, it is a trap."

For individual stocks:

1. If the trading volume is large and the stock price rises a lot, the trend will continue to rise significantly; if the trading volume is small and the stock price rises a little, the trend will continue to rise slightly.

2. If the trading volume is large but the stock price rises a little, the trend may reverse; if the trading volume is small but the stock price rises a lot, the trend may reverse.3. High trading volume with significant price drops indicates a continuing downward trend; low trading volume with minor price declines suggests a continuing slight downward trend.

4. High trading volume with minor price drops may signal a potential trend reversal; low trading volume with significant price drops may also indicate a potential trend reversal.

Below are the illustrations for those with a weak foundation to understand more easily.

1. New volume and new price reach new highs

Recently, the volume that has reached a new high is accompanied by the price that has also reached a new high in the near term, which may suggest a continuing bullish outlook. Therefore, each time the price retraces, it becomes a buying opportunity.

2. No need to escape from a volume contraction and slight pullback

There is a noticeable reduction in trading volume, and the price has experienced a slight pullback. There is no need to worry, as this is usually a short-term washout behavior. As long as the support level is not breached, continue to hold the stock and there is no need to escape.

3. Be cautious with high volume and stagnant price growth

(The last sentence seems to be incomplete, but I will translate the provided part.)Volume hits a new high, but the stock price does not reach a new high, and it doesn't rise. This is a warning sign to be cautious and to pay attention to risk avoidance. This situation is known as a divergence between volume and price, and it may indicate that the main force is selling out.

4. Must run when there is an increase in volume without an increase in price.

This situation requires extra caution when it occurs at high levels! The stock price rises, but the volume decreases, showing a lack of strength in the rise, which is a divergence between volume and price. A significant drop may be expected later.

The true relationship between volume and price actually only has "four types"!

1. The relationship between volume and price during limit-up and limit-down boards

In the process of stock price movement, the relationship between volume and price during limit-up and limit-down boards is fundamentally different from the ordinary volume and price.

A. The relationship between volume and price on a limit-down board: When the stock price hits a limit-down board due to widespread pessimism among investors and frantic selling, the sell order at the first position is often huge. At this time, the volume of transactions is all the volume of active buying orders. Therefore, the smaller the volume, the fewer the active buying orders, indicating that there is still a large space for the price to fall later; on the contrary, the larger the volume, the more active buying orders, indicating that the space for the price to fall later will not be too large, and the stock price is about to stop falling.

B. The relationship between volume and price on a limit-up board: When the stock price hits a limit-up board due to widespread optimism among investors and frantic buying, the buy order at the first position is often huge. At this time, the volume of transactions is all the volume of active selling orders. Therefore, the smaller the volume, the fewer the internal selling orders of the stock, indicating that the resistance to the rise later will be smaller, and the space for the rise will be larger; on the contrary, the larger the volume, the more internal selling orders of the stock, indicating that the resistance to the rise later will be greater, and the space for the rise will be smaller.2. Volume Contraction and Price Increase

A. The first scenario of volume contraction and price increase refers to the process where the stock price continues to set new highs, but the corresponding trading volume does not increase accordingly, instead, it gradually decreases, creating a divergence between volume and price, which often implies that the upward momentum of the stock price is insufficient, and there is a potential for a reversal and decline at any time. (Some individual stocks, due to the high degree of control by the market manipulators, experience relatively less selling pressure during the ascent and often continue to rise with a shrinking volume. However, when a significant increase in volume occurs at a high level, it is a signal that the stock price has reached its peak, and it is necessary to take profits in a timely manner to avoid risks.)

B. The second scenario of volume contraction and price increase occurs when the stock price is at the top, and the market manipulators begin to distribute some of their shares, causing the stock price to fall. To better complete the distribution, they artificially rebound and lift the price to lure retail investors to follow. At this time, the price often rises, but the trading volume is insufficient, and once the manipulators have completed their distribution, a more fierce plunge will follow.

3. Low Volume and Low Price

Low volume and low price occur after the stock price has fallen for a long period from a high level. As the selling pressure from the bears gradually decreases and the reluctance to sell becomes more apparent, the bulls are not willing to enter the market due to the lack of profit-making effects. This results in a light trading between both sides, with the trading volume continuously shrinking to a low level, and the price also remains at a low level. This often means that the market bottom is approaching, and investors holding the stock do not need to sell at a loss, while investors holding cash should be prepared to invest. Once the market shows an increase in volume, and the trend of a reversal is established, they can boldly enter the market.

4. Increasing Volume and Falling PriceA. The first scenario of increasing volume with falling prices occurs when, after a wave of stock price increase, a huge volume (usually a bearish volume) is released at the top, while the stock price plummets sharply. This often appears at the early stage of the stock price decline, with the bears frantically selling off.

B. The second scenario of increasing volume with falling prices is that the main force absorbs a portion of the chips in the bottom interval, and then uses the absorbed chips to knock down the price, in order to smash out more panic plates (often with an increase in volume and a decline in price), and to absorb more cheap chips at the bottom.

How to use trading volume for buying and selling?

1. Increasing volume with rising price, buy signal

Increasing volume with rising price, also known as volume increase and price rise, refers to the stock price rising synchronously with the increase of trading volume, which is a classic pattern of the combination of volume and price. Increasing volume with rising price mainly appears in the process of the stock price starting to rebound and rise from the bottom area, accompanied by an increase in trading volume, indicating that a lot of capital has entered, and the strength of the follow-up to do more has been strengthened. Increasing volume with rising price also often appears halfway through the rise, consistent with the market significance at the beginning of the rise, implying that there is still room for the stock market to rise later, and you can continue to follow up and do more.

2. Stable volume with rising price, continue to buy

Stable volume with rising price refers to the situation where the trading volume changes very little, almost maintaining the same level, but the stock price is rising. The pattern of stable volume with rising price mostly appears in the process of the stock market rising slowly or slowly. The trading volume always maintains a certain level, and the change will not be very large. This indicates that the strength of the bulls and bears is relatively balanced, but the strength of the bulls always occupies a certain advantage, and the stock price rises slowly. As long as the stock price has not reached a certain high price, the possibility of the stock market continuing to rise is still relatively large, and you can participate in it in a timely manner during this period.3. Declining Volume and Falling Prices: A Selling Signal

The term "declining volume and falling prices" refers to a situation where the stock price falls in tandem with the reduction in trading volume. This phenomenon can occur at any stage and position of the stock price movement, but it conveys different market implications. When it appears during a falling stock price, it indicates that shareholders are still selling out, but there are fewer and fewer buyers, with the bearish forces holding an absolute advantage, and the stock price is expected to continue falling. If it occurs at the bottom of a fall, close to the pattern of low volume and low price, it suggests that the bearish forces have been exhausted, making it a good time to bottom-fish and enter the market. If it occurs during an upward trend, it indicates that the stock price is in an adjustment state, with the bulls and bears fighting each other. If the bears win, it suggests a reversal of the stock price and a downward trend; if the bulls win, it suggests that the stock price will continue to rise. As the trading volume continues to decrease and the stock price starts to trend downward, it is a signal to sell. This is a case of "volumeless decline," with no end in sight to the bottom. As the saying goes, "the bull market does not die, the decline does not stop." The decline will only stop when the bulls completely lose confidence and cut their positions to admit their losses, resulting in a significant increase in trading volume. Therefore, in terms of operation, as soon as the trend reverses, one should cut losses and exit in a timely manner.

4. Stable Volume with Falling Prices: Continue to Sell

When the trading volume stops decreasing and the stock price slides rapidly, this stage should continue to adhere to the policy of selling early and not buying to avoid the risk of "flying knives cutting hands."

Practical Case Study:

After understanding the basic pattern characteristics, let's look at an example of the stock price changes of Shenzhen Chiwan Port A from July 2005 to April 2006. From the chart, it can be seen that the stock price started to decline from the previous peak, and then the peak volume of the previous period appeared. However, later, a phased bottom pattern was formed at the bottom, and the corresponding bottom volume has greatly exceeded the peak volume of the previous period. Subsequently, the stock price obtained the support of the moving average, forming a price support pattern, which also indicates that the stock price is about to start from the bottom.Afterwards, continue to observe the trend and pattern of this stock. You can compare the changes in trading volume between the top and bottom. After the establishment of positions and the washing of the market, this stock will break through the previous high and start an upward trend. When the pressure turns into support, investors can buy and wait for the market to rise. From the changes in its trading volume, you can see that the multiple volume pattern is a potential gene for dark horses in the rise. Investors should seize the opportunity to intervene in time.

After investors get involved in this stock, they can observe the changes in the later trend. The stock price rises all the way to 24.30 yuan, indicating that the rise from the bottom is correct. Moreover, the pattern of bottom volume exceeding top volume at a low position is a dark horse stock pattern for buying. I hope investors can grasp the changes in the trend.

Stock trading is not as imagined, it is just a market. The reason why stock trading is difficult is because people are affected by emotions and complex troubles. When a person can be simple, you can see through the mysteries of the stock market; when a person thinks too much, you can only wander at the door of the stock market. Simplicity and complexity are interrelated. Simplicity without complexity is not true simplicity, and simplicity that comes out of complexity is useful simplicity.

Traders who start with simple ideas often make a lot of money, but then it's not very good. Human desire is endless, and it's not easy to let go when you think too much. Emotions become complex, and complex emotions are a dead end. Many people can't get out of the complexity of emotions; later, as the time of trading becomes longer, the analysis and methods become more and more complex. Many people keep changing their analysis methods, using this and that, believing that there is a perfect analysis method in the world that will make them successful, rather than practicing with their hearts. Such people will always be unable to find the door to enter the stock market; many people are lost in complexity, wandering in complexity.

Some people find effective rules and work hard to follow the rules; some people sometimes find rules and sometimes don't; some people never find useful rules. The latter is the most, and the former is the least, only 1%. Stock trading is difficult! Always follow your rules of trading is very boring, and boredom will become an obstacle on your way forward, but boredom is also the best learning tool on your way forward. Consistent implementation of rules is a very difficult thing!

If you make rules, don't violate them, otherwise there will be pain and failure; only by following your rules can your heart be relaxed and happy. But most people are always impatient, always violating the rules to make deals, and the result is a loss. You use the consistent implementation of the rules to cultivate emotions, and your heart will gradually become pure without distractions over time. You will always be patient and wait for good buying and selling points, and you have started to enter the door.

There is no shortcut in stock trading, and success is not easy. Every trader wants to find the road to success as soon as possible, but in fact, most people will die on the road. The road to success is long, always learning a little, practicing a little, understanding a little, and making progress a little. Failure and pain are your best teachers. Those who think that stock trading can be achieved quickly, and the idea of making a fortune in stock trading, rather than being in the world with a normal heart, will be blinded and unable to open their hearts, and it is impossible to enter the ranks of winners.

If you focus on external factors every day, it will only disturb the peace of your heart, making you often make pre-judgment analysis, and the market is obviously the opposite, which will make you troubled, and it will be difficult to seek the true meaning of stock trading; when you can control your own heart, you will see through the mysteries of stock trading, and follow the market more clearly and grasp the timing.

Don't compete with the market, those who compete will die quickly, and there are always stronger people in the market. The market is unpredictable, and your heart moves, and your trading ends in advance. Let your mind be empty! Those who listen to the voice of the market and follow the market will survive and become winners.You are right until proven wrong. Once you open a position, your mind should only focus on the stop-loss point and the profit-taking rules for closing the position. You don't need to re-analyze your opening position; you just need to use your stop-loss to control the risk, and then let the profits grow. In the end, you will achieve good returns.

After opening a position, it is impossible to repeatedly speculate and analyze your own opening position. Such analysis or illusion will only cause emotional confusion and complexity, making you lose direction. You need to believe and admit that any result can happen after opening a position, but it is not what you need to focus on. You only need to focus on your stop-loss point and profit-taking rules. Otherwise, repeatedly speculating and analyzing stock trading is impossible, and your success will come from your adherence to the rules!