Fear of missing out or FOMO is one of the most common struggles that traders have to deal with. FOMO is what I explore in this post.
What is Fear of Missing Out (FOMO)?
FOMO is the fear traders get when they think they might be missing out on profiting from a trade. When it comes to FOMO, emotions are almost always involved. And when emotions overcome logic, poor trading decisions are normally made.
Where Does it Come From?
Mostly (in my opinion), it comes from comparing ourselves to others, with the main driver being internet / social media. This can come in many forms and from many sources:
- Seeing how other people are in trades and in profit while we are not.
- Seeing other people succeed while we are not.
- Being bombarded with news on the latest and hottest themes, stocks, cryptos, etc.
- Marketing.
- 24/7 access to trading.
- Going on a losing streak. The more losses in a row, the more desperate you become to make the money back. Imagine what can happen missing a profitable trade after 3, 4 or 5 losses?
- Experiencing a winning streak. This can make you overconfident, thinking you can’t lose.
Emotions like fear, greed and jealousy can manifest at anytime, which can influence our decisions. We all have desires… and its normally connected to money in some shape or form. And where a lot of money is involved, emotions normally run high. This can lead to irrational decision making.
What can FOMO Cause?
FOMO can make you act irrationally. This means making decisions that you never intended to make. The biggest ones, for me, are:
- Entering trades early without any confirmation (scared of missing the move).
- Entering trades late (missed the trade or move).
- Risking too much (like betting on a single trade because of some hyped up asset).
- Overtrading (taking trades outside of your trading strategy because of outside influence).
Remember, making money from a FOMO trade doesn’t mean it was a good trade. In fact, it’s a bad trade since you have not followed your rules… this reinforces bad habits.
Tips on Overcoming FOMO:
It all comes back to having a proven trading strategy. Anything you do outside of your strategy should be considered as FOMO. Once in place, try this:
- Write a trading plan before you enter each trade and define each parameter of your trade as per your strategy, i.e. entry, target, stop loss, risk, etc. Before you make any decision, first consult your trading plan to check if you are still following it. This might not be possible for day trading, try using a check list instead.
- Record all your trades in a journal and review them and find ways to correct your shortcomings.
- Don’t ever trade with scared money.
- Find ways to minimize social media activity and curate who you follow wisely.
- You have to start developing a long term mindset. Understand that trading is not a get rich quick scheme… if you apply yourself diligently, anything is possible. Thinking long term also helps a lot with developing patience.
- Tying nicely into the above is instant gratification. Accept that pursuing anything that’s worthwhile will take time. Also, keep your expectations realistic. There is nothing wrong with having high expectations, but it comes back to time frame. What do you think is harder: doubling you account in a week or in year?
Finally:
All traders experience FOMO. Some decide to deal with it and others don’t. If you can admit you are struggling with FOMO, you are half way there, because now all you need is find ways to deal with it. This will put you ahead of so many other traders. Because once you’ve tackled one problem in trading, tackling the others becomes easier (and normally with a similar framework as discussed above).
