The Emotional Trap That’s Always Lurking in the Background
Regardless whether it’s trading Forex, Stocks, Shares, Cryptos or precious metals, there’s a very good chance all traders have encountered this common trap at one time or other during their careers.
Like most things in trading, this trap is centred on your emotions and discipline.
It’s a trap susceptible to both new/inexperienced traders trading with retail accounts as well as professional traders.
It’s always there…waiting in the wings to lure you in.
Introducing…
‘FOMO’ otherwise known as the ‘Fear of Missing Out’
Before moving on, let’s look at the dictionary definition of ‘FOMO’
…a feeling of anxiety or insecurity over the possibility of missing out on something, as an event or an opportunity:
For example:
If I say no to a party invitation, I get a bad case of FOMO.
So What Is FOMO in Trading?
FOMO is often used in trading as well as investing to describe how emotions like impatience or envy motivate traders to poor or rash decisions in the markets.
In the age of social media, where more and more traders divulge their stories, journeys, challenges and successes, FOMO is now become a common phenomenon.
Ordinarily, emotions are the key driver behind why traders feel compelled to act in such a way.
Some of the common emotions that fuel it include:
- Impatience
- Greed
- Fear
- Excitement
- Over-Confidence
…and if these types of emotions are left unchecked, then it often leads to traders abandoning their trading plan and exceeding recommended and acceptable levels of risk
So What Factors Trigger FOMO Trading?
- Volatile Markets: Whether the market is bullish or bearish, if the market is trending no trader wants to miss out on a ‘big win’ opportunity
- Long Winning Streaks– Winning streaks can nurture a mindset of over-confidence. Spotting and jumping in on every market ‘opportunity’ thinking it will work out is very dangerous territory (as you probably now). As great as winning streaks are, unfortunately they never last forever.
- Long Losing Streaks– Losers can play havoc with the emotions of a trader often leading to bigger and bigger losses. They can often create this vicious cycle of entering a trade, becoming scared and closing out. Getting angry and frustrated, for not holding the trade, they re-enter another and the cycle continues.
- News & Rumour Mill– Getting caught up in market news and rumour can often heighten emotions of being left out.
- Social Media– Trading and social media (particularly Twitter) can be a toxic combination. So many ‘experts’ who never seem to lose or be wrong in the markets!!. Always take social media content at face value. Do your own research and evaluations on what influencers/market experts you follow and the content they post
OK, so I’ve explained some emotions and external factors that bring about FOMO, but what can you do to overcome it??
Unfortunately there is no one simple solution to preventing your emotions from impacting your trading and stopping FOMO in it’s tracks.
However, there are some tried and tested techniques and mindset shifts that can help you manage the fear factor so you can make better decisions and trade more effectively.
- You’ll never be short of trading opportunities– Just remember, there will always be another trade to enter. It may not come about immediately, but the right opportunities are always worth the wait.
- You’re in the same position as every other trader. Recognising and understanding you’re no different to any other trader can prove a real breakthrough and make FOMO far less intense
- Never deviate from your trading plan– Know your plan, know your strategy and stick to it! PERIOD!!! This is the only way to long term trading success.
- Only trade with money you can afford to lose– You’ve probably heard this a million times but it so important when it comes to tackling FOMO.
- Know the Markets– It’s essential you conduct all your own analysis to inform you of trades and every possible outcome
- Keep a trading journal: All the best and most successful traders use trading journals. Journaling your trading helps with making you more accountable, determining the viability of your strategies & set-ups, establishing and working on your weaknesses, setting goals
Beating FOMO is not something that’s going happen overnight.
It’s an ongoing process of working on your emotions and trading psychology.
However, if FOMO is a trap that you’re constantly falling into then try the above techniques and mindset shifts and let me know how you get on.
