Human Psychology: Immediate Wealth Accumulation Through Stock Trading

As a stock market enthusiast, you may frequently encounter requests for recommendations on stocks that could yield handsome profits within a few trading days. Is it that simple to make money from the Stock market? Of course NOT, making money from investment in the stock market depends on time invested, patience, stock potential in fundamental and technical terms, and the cost of the fund. Certainly, having knowledge and experience can impact one’s earning potential to some extent.

At present, there is a strong influence of influencers and social media that has been guiding the Market. The bombardment of boom-boom posts on social media raises many questions in the minds of viewers. Even the experienced one thinks twice about the issue and Fear of missing out (FOMO) activates which eventually hits his/her investing decision.

Quick Earning Mentality

It’s a human psychology that one desires to make money from the very first day of investment but it happens only as a stroke of luck. This makes the stock market a so-called casino which is not the case. Investing in the stock market involves a structured process of allocating funds into stocks while considering fundamental, technical, and economic factors. This typically leads to two types of returns: dividend yield and capital gain yield. Nowadays, investors are more focused on capital gains over a short trading period, rather than expecting dividends. The smart player might often book short-term profit but the one who is yet to get experience will lose the money in 72 Hour (T+3) gameplay.

Fear of Missing Out

Whether it is long-term investment or short-term trading, in either case, Injecting funds into the market should follow a gradual and methodical approach. Following the market trend and making the best possible moves would result in a disciplined approach to investing and eventually higher earnings. When one decides to buy, he/she feels that he will be missed with that price as if the stock will not hit that price ever and the same goes at the time of selling. Averaging the cost at the time of buying controlling FOMO emotion and selling the stock in gradual price increments would maximize the potential gain in either of the cases. The following Example portrays how FOMO often leads to loss-making moves:

The above example shows how FOMO affects Normal Trader. Buying the stock at 472.77 and selling at 408.20 gives a 13.66% loss within 4 days excluding commission and DP fee. A Control over FOMO emotion could have led to buying at 452.35 and selling at above 500 which would give a profit of approximately 11%. However, it is often difficult for everyone to manage such Emotions and correctly time the trading decision.

Stock affection -A substantial Blunder

When one makes money from a particular stock he/she gets stuck into that stock in such a way that regardless of how it is performing in late times,  cannot get rid of such stock and continues to hold it or add the same stock. For instance, there is a reputed Stock from the manufacturing category that had very good fundamentals before capital increment. The increased capital did not align with the expansion of the business, leading to a decline in financial indicators. However, had the business grown in proportion to the increase in capital, the fundamental metrics would have remained stable, resulting in higher stock prices. The stock price plummeted sharply by around 80%. Numerous investors opportunistically purchased shares during the correction phase of 30-50%, either to average their costs or due to the allure of the previously attained all-time high, but are now experiencing losses exceeding 50%.

Floor sheet Analysis, Broker Holding, and Accumulation Pattern

Utilizing volume-based analysis alongside broker actions, supported by both fundamental and technical indicators, can be a strategic approach to identifying optimal stocks for trading. Mindlessly adhering to others' decisions, under the assumption that no one wants to lose money, typically puts ordinary traders at a disadvantage. This is because they might end up buying stocks on days when savvy traders are cashing out and taking profits from their investments. When an individual realizes that a specific stock has been predominantly accumulated, it often coincides with the moment when those traders are ready to capitalize on their gains by selling and booking profits.

Limited Information before making Investment decision

Prioritizing the collection of information about any stock is essential before taking any action. This practice offers several advantages, including understanding its performance relative to other companies in the same category through comparative analysis. For instance, consider a hydropower company consistently releasing financial reports showing zero revenue from power sales, causing its stock price to decline. This drop was attributed to a flood damaging the infrastructure. Many buyers who selected this stock believed it was correcting its price and invested, only to find their funds tied up because the price wouldn't rise until the company reported increasing sales in its financials.

The stock market provides an accessible opportunity for individuals to engage in the pursuit of financial gain according to their capacity. There's no minimum investment required to begin participating, and with basic research and patience, returns can be realized from investment funds. However, it's important to recognize that the stock market carries inherent risks, so each investment decision should be evaluated based on one's risk tolerance and capability.

Article By: Bibek Panthee

Sharemarket Enthusiast