Good Management

What are the root causes of retail investors' losses? The root causes of retail investors losing money in the investment market can be summarized in the following key points:

Greed and Emotion-Driven: Retail investors are often driven by dreams of getting rich quickly. After entering the market and being stimulated by dopamine, they chase short-term profits. After making a profit, their risk appetite increases, and greed leads to overtrading, ultimately returning both principal and profits to the market. After incurring losses, emotional reactions, such as frequent trading or panic selling, further exacerbate the losses.

Cognitive Bias and Information Asymmetry: Retail investors mistakenly believe they can outperform the market, ignoring the gap between themselves and the major players or institutions. Major players create illusions using technical patterns (such as head and shoulders, golden crosses) to lure retail investors into buying at high prices. The news is often delayed and can be false information, causing retail investors to rely on news or fragmented information, leading to poor judgments.

Behavioral Fallacies: Frequent trading increases the probability of losses; data shows that those who trade frequently on average have a loss probability three times that of smart investors. Lack of discipline makes it difficult to execute rational strategies, such as holding cash while waiting or cutting losses.

Market Ecology and Game Theory: 90% of retail investors lose money in the market; those who profit need to have probabilistic thinking, game theory thinking, and a holistic market ecological perspective. In the game between major players and retail investors, retail investors often become the 'sacrificial lambs.'

Solutions:
Discipline and Patience: Hold cash and wait for major panic (such as when the market crashes due to policies or external turmoil) to enter the market again, reduce trading frequency, and cut losses.