The fear of missing out on a trade, or known as FOMO in trading, is one among other emotional states in trading that are put to the test over and over again.
Before we dive into the fear of missing out, for the purposes of this article, let’s tweak the dictionary definition of FOMO only a little:
We now have a perfect definition for a phenomenon encountered by far too many new or inexperienced traders: the fear of missing out on a big trade, regardless of whether it fits your trading plan or follows the guidelines of your risk-reward ratio.
Two branches of FOMO in trading
We briefly touched on this idea in the article we published on fears in tradeBut let’s elaborate to clear up some misconceptions that inexperienced traders have when they approach trading.
Understanding FOMO is important because it is the first step in the difficult journey of adjusting your brain to retrain this fear. One of the reasons rewiring your brain to counter FOMO is difficult is because fear works on two contrary emotions:
You see your trade has more potential and you don’t want to get out of it -or- You see your trade pull back and eat your floating profit and you want to protect your already made profit.
These feelings put you, the trader, in a difficult situation. Should you be hoping for a good break even though it will be at the expense of losing as the trade heads towards the retracement or breakeven? or you can hold on to trade and squeeze more potential out of it? This is the core of the conflict that FOMO creates in trading.
FOMO from outside the market
Another element of fear arises when you are on the sidelines watching the action in the market. When you are flat and not in the market, but see opportunities coming up, you may be forced to rush into the market early or enter late and miss an opportunity entirely.
Or let’s say you saw your trade reach the level you’d like to enter, but not all the conditions for entry were met. But the failed trade proved that it would have been a knockout for you.
Now the scenario repeats but you have time to make the trade. The trade is forming with the same pre-signs but they are not perfect yet. Your FOMO kicks in and pushes you to enter prematurely this time, which can cause severe reduction sometimes stopped by your stop loss or not entering to the right risk-reward position for your trade. Acting out of fear prevented him from taking full advantage of his input.
Post FOMO trade
On the other hand, relative to the recent effect, it did have a nice trade and it looks like it’s starting the rally that I was hoping for. You saw the confirmations, but the market has moved. You jump late and enter your trade after the rally already started.
In this example, the FOMO on a good rally will cause you to jump out late in the trade, thereby exposing you to further drawdown due to entering the mid-range of a price. When you are in no man’s land you can get massive drawbacks and also your RRR will be very low because you have to allow a wide stop loss position to survive.
FOMO Trading Summary
While it all comes down to the fear of missing out on a big or good trade, FOMO can be applied to almost every stage of trading. From FOMO on and in to FOMO out, anxiety can be paralyzing.
Solving the fear of missing out it’s something all traders need to work on. Mental exercises to break fear are crucial when it comes to self-control and restraint.
FOMO trade resolution
Here are several ways to help you deal with FOMO:
Don’t expect the perfect trade
The first step in addressing this problem is to understand and convince yourself that you cannot expect the perfect operation. Every time you stick to your plan and are about to trade, train yourself don’t expect the trade to be perfect.
Stick to your business plan
The next step is to put reasonable and realistic entry and exit points into your plan and only take these. Do not change points after performing an operation. If you do, you’ll ruin your next trade and all you’ll be doing is losing your Commercial plan. Over time, your entire plan and portfolio will fall apart if you continue down this path.
embrace your emotions
don’t ignore you emotionsit’s okay to feel disappointed about losing and to feel successful when you win a trade.
You have to be aware of your feelings, you have to know when you are not at your peak, and you have to stay away from the screen, maybe not trade that day. Learn to respond in any emotional way, insert it into your trading plan, so you know how to act next time.
Here is a special webinar from Gil Ben Hur on the right mindset for traders
FOMO Trading: The Bottom Line
The key to dealing with FOMO and so many other issues associated with trading is to be fully responsible for sticking to your trading plan and only taking what you expected to take. Stick with it and don’t let flashback, fast forward or any other event change your plan.
Even if there is a lot of talking, never listen to any member of your trading community tell you that you should have stayed longer. Opinions are fine when they are productive, but there is nothing to be gained from critical hindsight. Sure it might have helped on the last deal, but on the next deal it might ruin you.
Always remember: as long as you have been focused on your trading plan, you are doing the right thing.