Fomo – what it means & what it can do
Many new traders suffer from “FOMO” – fear of missing out. FOMO is the fear of “not being included” and is often mixed with feelings of greed. This can drive irrational trading decisions and cause trades to be opened with no prior planning, analysis, or risk assessment. Over time, this usually ends badly with financial and emotional burnout. That’s the negative news, so let’s turn that knowledge into a positive and look at ways to counter FOMO.
Positive Trader Mindset
One of the keys to trading success is to recognize the impact that your emotions can have on your trading results. This is an element of “trader mindset”.
Success and trader longevity requires an integrated focus on trader mindset, proven trading strategies (setups) and effective risk management. Balanced integration is very important, and you will need to find the balance that works best for you. FOMO has the potential to severely disrupt this integrated focus.
If any one of the three areas is compromised, the trade will potentially be compromised too. Risk management and trading strategies are more objective “mechanical” activities. Mindset is not and is often the hardest to master.
When I was learning to trade, I suffered from FOMO and most of those trades resulted in impulsive behavior that generally led to losses.
Want some tips to help deal with FOMO?
Crowd behavior can drive FOMO.
- It’s important to learn to think differently from the crowd;
- Social media & chat groups can fuel FOMO;
- Ignore news and social media posts about markets and trades when you are planning and executing trades;
- Learn to rely 100% on your own analysis (#DYOR);
Accept that it might take 2 to 3 years before you consistently grow equity from trading.
- Education and practice are vitally important along with understanding the impact of emotions on trading results;
- Part of the journey to success is to learn how to prevent your emotions (particularly FOMO) from interfering with your trading decisions;
- Develop trading rules that you follow religiously;
Use larger chart timeframes.
- Analyze markets in 3 timeframes (e.g. weekly, daily, 240 minute) and trade in the direction of the dominant trend on the larger timeframe;
- These timeframes allow ample planning for setups;
- Use larger timeframes for your analysis and setups, set the order and go do other things;
- Don’t get glued to a 5-minute chart to watch the trade unfold;
Plan trades and learn to let the market come to your low risk setup.
- If it doesn’t, go find another setup and repeat the process;
- Never use market orders;
- Trade planning must be in place first before entering a trade;
Record all trades in a journal.
- Whenever I feel impulsive now, I look back at my records and this reminds me about the damage that FOMO once caused.
- See the difference in results when your trades are planned;
Learn to proactively recognize low risk setups;
- After you enter a position, move it to break even as soon as you can. This helps a lot to reduce fearful emotions;
- Over time, I also became more comfortable with my proven setups and trading strategies. Profits came from planning, patience and low risk entries. I waited for the market to trigger my setups;
- Experience builds confidence which helps improve mindset;
Practice with small risk and reward yourself as you get more proficient.
- Becoming successful at trading requires a lot of practice;
- Over time, one reward is to lift your risk up to 1 to 2% of your trading equity;
Reinforce the behaviors that drive success from 90% planning and 10% execution.
- Reinforce proactive trade planning and execution;
- Discourage any impulsive behaviors.
If you’re not feeling 100%, don’t trade.
- If there is stress in your life, that is affecting your judgements – don’t trade;
- If you are feeling high, or over exuberant – don’t trade;
Trading will teach you a lot about yourself and your behaviours.
- Learn from your experiences;
- Use that information to be open and honest with yourself and focus on continuous self improvement.
Remember, there are many market opportunities every week. If you miss out on one, walk away and get on planning for the next setup.