In short: Many beginning investors and traders make the same mistakes: no plan, oversized positions, no loss limit, too much trading and deciding on emotion. Fixed rules set in advance can reduce these mistakes. Losing money always remains possible.
Step by step
- Write down your rules: what you buy, how much you risk per trade and when you get out.
- Decide your loss limit before you place an order.
- Keep your positions small relative to your total capital.
- Limit the number of trades and count the costs.
- Do not add to a losing position to lower your average price.
- Take a break after a big loss.
- Keep a journal and review it regularly.
- Do your own research and be careful with tips from strangers.
Mistake 1: no plan and no loss limit
If you trade without a plan, you decide in the moment, often on gut feeling. A fall feels like a temporary dip, until the loss is too big to accept.
Example (hypothetical): you buy 100 shares of X at €20.00 and think “it will be fine”. The price falls to €16.00. Your loss is €400. If the price falls further, the loss grows while you are still hoping.
What helps: decide in advance at which price you get out, and fix that in a stop-loss or in a firm rule you follow yourself. Keep in mind that a stop-loss is not always executed at your stop price, for example in a gap. See order types explained.
Mistake 2: positions that are too large
With a large position, one wrong trade has a big effect on your capital. It also makes you nervous, and nervous decisions are rarely good.
What helps: first decide the most you want to lose on a trade, then work back to the number of shares. The position size calculator and the risk per trade calculator do this for you. How much you want to risk is a personal choice that fits your situation.
Mistake 3: trading too much
Every trade costs money: commission, spread and sometimes currency costs. If you trade often, you pay a lot in costs. Trading often feels active, but is not necessarily better than trading less.
Example (hypothetical): costs of €5 per order, 20 trades of 2 orders each is €200 in costs. On an account of €5,000 that is 4%, before you have earned a cent.
What helps: decide what a good trade is for you, and only take those. Count the costs before you start. You can do that with the break-even calculator. Also read about the bid-ask spread.
Mistake 4: deciding on emotion
Loss and gain trigger strong feelings. Common patterns:
- Winning losses back: taking bigger risks after a loss to make it good quickly.
- Fear of missing out (FOMO): getting in because the price is already rising and everyone is talking about it.
- Taking profit too early: out of fear of losing the gain.
- Letting losses run: out of hope, or because you do not want to admit a loss.
What helps: a fixed plan and a checklist. If you know you are emotional right now, do nothing and look again tomorrow. You can find more on this topic in the tutorials on psychology and risk management.
Mistake 5: adding to a losing position
If you buy more of a falling stock “to lower the average”, you make your position bigger while the plan is not working. The risk rises, not the chance that you will be proved right. Each time you add, decide as if you were opening the position for the first time: would I buy it now, with this risk?
Mistake 6: following tips from others
Posts on social media, forums and chat groups can steer on feeling or even be misleading. Be extra careful with promises of high or guaranteed returns, with time pressure (“get in now!”) and with providers that have no licence. Check whether a broker is supervised by the Dutch AFM or another regulator.
Mistake 7: not keeping records and not learning
Without a journal, you do not know why your trades made a profit or a loss. Record your reason, your plan and the outcome per trade, and review it regularly. Look mainly at whether you followed your own rules, and less at the result of a single trade.
Mistake 8: not knowing what protects you
Check how your broker protects your money and securities, and what is not compensated. Market losses are never compensated. Read what investor compensation and the deposit guarantee scheme cover.
Common mistakes at a glance
| Mistake | What helps |
|---|---|
| No plan, no loss limit | Set exit rules in advance |
| Position too large | Work out position size from your maximum loss |
| Trading too much | Rules for when you trade, count the costs |
| Deciding emotionally | Checklist, take a break |
| Adding to a loss | Decide each time as if you were entering again |
| Tips from strangers | Do your own research, check the regulator |
| Keeping no records | Journal with plan and outcome |
Investing involves risk: you can lose some or all of your money. This tutorial is information, not investment advice.
Work it out yourself
Test yourself
Practice questions to check your understanding, not advice.
You buy 100 shares of X at €20.00 and the price falls to €16.00. How large is your loss, excluding costs?
- €4
- €16
- €400
Show answer
Answer:C. €400
The loss is €4.00 per share (€20.00 minus €16.00). On 100 shares that is €400.
You pay €5 per order and make 20 trades of 2 orders each (a buy and a sell) on an account of €5,000. What percentage of your account does that cost?
- 4%
- 0.4%
- 2%
Show answer
Answer:A. 4%
20 trades × 2 orders = 40 orders × €5 = €200. €200 of €5,000 is 4%, before you have earned anything.
According to the tutorial, what happens if you buy more of a falling share to lower your average price?
- The risk falls because your average price gets lower
- Your position gets bigger while the plan is not working, so the risk rises
- The chance that you are proved right gets bigger
Show answer
Answer:B. Your position gets bigger while the plan is not working, so the risk rises
Buying more makes your position bigger. The risk rises, not the chance that you are proved right.
What does FOMO mean in this tutorial?
- Taking profit too early out of fear of losing it
- Winning back a loss quickly by taking bigger risks
- Getting in because the price is already rising and everyone is talking about it
Show answer
Answer:C. Getting in because the price is already rising and everyone is talking about it
FOMO is the fear of missing out. The other two descriptions are different emotional patterns: taking profit too early and chasing losses.
According to the tutorial, what should you be extra careful about with tips on social media or in chat groups?
- Promises of high returns, time pressure and providers without a licence
- Providers that are supervised by the AFM
- Tips where a journal is kept
Show answer
Answer:A. Promises of high returns, time pressure and providers without a licence
The tutorial names promises of high returns, time pressure ("get in now!") and providers without a licence as reasons for extra caution.
Frequently asked questions
- What is a common, costly mistake for beginners?
- Trading without a plan set in advance. If you do not know when you will get out, you often keep hoping for a recovery in a losing position for too long. A position that is too large relative to your capital is also common. One bad trade then has a big impact on your balance and your state of mind.
- How do I avoid overtrading?
- Set rules in advance: which situations you want to trade and the maximum number of trades per day or week. Take the cost per trade into account, because it adds up. A checklist before you place an order helps you avoid trading out of boredom or excitement.
- What should I do after a big loss?
- Take a break. Do not carry on trading straight away to win the loss back, because that often leads to bigger risks. Look back calmly later at what happened: did it go wrong because of your plan, or did you not follow your plan? Then consider smaller positions until you are deciding calmly again.