A hugely valuable skill for traders is overcoming the fear of missing out (FOMO). FOMO can negatively impact decisions, but it may also cloud judgment and overshadow rationality, which is problematic when making trading decisions.
In trading, what exactly is FOMO? It’s the fear that traders have when they believe they could be missing out on significant chances or that other traders are more successful. Traders who understand FOMO, where it originates from, and how they react to it are in a strong position to combat it at its source: the deepest workings of their own mind.
This article will assist you in overcoming your FOMO by providing strategies to halt it in its tracks or possibly prevent it from occurring in the first place.
Where does FOMO in trading come from?
Because of how interwoven our everyday lives are, FOMO in trading has ingrained emotional roots. The contemporary trader lives in a world where social media is common and they are constantly exposed to success tales of others.
Various emotions, including as fear, greed, envy, and impatience, can arise during trading and contribute to FOMO. The fast-paced nature of trading in various circumstances might trigger these emotions. Various factors might cause FOMO, from significant occurrences to abrupt market fluctuations to something as simple as a discussion with another trader.
What factors can trigger FOMO trading?
External factors that might lead to traders experiencing FOMO include the following:
- FOMO isn’t limited to bullish markets when individuals desire to ride a trend; it may creep into our psyche whenever a market moves in any direction. No trader wants to pass up a good opportunity.
- It is simple to spot fresh opportunities and catch up when you are motivated by recent wins. And it’s fine since everyone else is doing it, right? Unfortunately, winning streaks don’t endure forever. A trader might become caught in a vicious cycle by entering a position, becoming anxious, closing it out, and then re-entering the market as guilt and disappointment arise from not holding out. This may eventually lead to bigger losses.
- Hearing a circulating rumour might heighten the feeling of being left out — traders may feel as though they are out of the loop.
- When it looks like everyone is winning trades, the mix of social media and trading may be toxic. It’s important to take the time to research influencers and evaluate posts rather than accepting social media content at face value. We advise utilising the #FinTwit hashtag for inspiration rather than as a definitive planning tool.
- The strict application of your trading strategy, which includes your preferred indicators, may immediately disabuse you of any overly optimistic perspective you may have on a stock price that is rapidly moving. The pleasant illusion that a trade may produce can be broken if all of your trusted indicators you have painstakingly learned to use are screaming stop. Resist the nagging voice in your head encouraging you to jump on the bandwagon before it’s too late and instead take a few seconds to carefully consider the trade like you would any other.
How to deal with FOMO in trading
Feelings of FOMO may creep in occasionally, but there is no simple fix for eliminating them. Dealing with FOMO requires adapting your thought processes, which takes time. The feeling of missing out on a great opportunity may be pervasive.
- Accepting FOMO is the first step in overcoming it. The notion that everyone is having a better time and is more successful can be isolating and lonely, therefore, this can be a great deal of relief.
- The emotions of trading can take over and cause traders to question their own decisions. FOMO is intrinsically tied to psychology.
- When it looks like everyone else is winning trades, it’s simple to feel disillusioned and demotivated. Social media may be beneficial to traders but it can also be detrimental.
- You may record your trading time and activity and think back on it using a trading journal. It’s a great self-reflection tool that enables you to spot the beneficial behaviours and inhibit those that might lead to FOMO trading.
- Moving away from trades requires proper risk management, and if you find yourself tempted to trade out of fear, risk management will be your back up to prevent losses from getting out of hand.
FOMO is a trading approach that has produced a lot of money for people. At the same time, it has caused most individuals substantial losses. This is because launching a trade or going short is virtually typically done without first studying the asset, as we have stated numerous times.
This article examined what FOMO is and some of its distinctions from trading with a trading plan. But, because psychology is related, it is not always simple to avoid getting carried away (if our trading style is based on analysis).
We’ve also discussed FOMO causes and effective ways to avoid them. Or, at least lessen its consequences.