Errors of Commission in Stock Investing
Errors of commission occur when an investor takes an action that directly leads to a loss – doing something that should not have been done.
The most common forms include
- overtrading, where excessive buying and selling generates high transaction costs and poor timing decisions;
- chasing hype or buying into a soaring stock due to fear of missing out, often at the peak of a bubble; and
- panic selling during market declines, locking in losses that would have recovered with patience.
Other frequent commission errors are
- trying to time the market perfectly, which usually results in missing the best trading days, and
- revenge trading – immediately trying to win back losses with impulsive, oversized bets that compound the damage.
These errors are typically driven by emotional states such as greed, fear, overconfidence, or impatience.
Unlike errors of omission, which feel like quiet regrets, commission errors produce immediate, painful capital losses that are clearly visible on a brokerage statement. Because they directly reduce the capital available for future opportunities, they are often more damaging in the short to medium term.
Disciplined investors can learn to avoid them through
- pre-trade checklists,
- cooling-off periods, and
- strict risk management rules like stop-losses or estimated reward:risk ratio = >3 or projected annual returns > 15% per year.
