How to Stop Yourself from Chasing Stocks - Bulls on Wall Street

How to Stop Yourself from Chasing Stocks

chasing stocks There is nothing worse than missing a 10%-20% (or bigger) move in a stock. For some people, missing out in big moves is more painful than actually losing money. As a result, people will chase stocks, and buy near the top of the move, and immediately put on a losing trade. These traders quickly learn that chasing has disastrous consequences for your capital. So how do you combat FOMO and stop buying stocks to high and shorting stocks too low? Here are some simple tricks to stop yourself from chasing stocks:

Why Do We Chase Stocks?

We know we shouldn’t do it. But sometimes our emotions get the best of us. FOMO is the primary reason why we chase. We want to be in the move so badly, that we throw reason out the window and jump in. There are so many opportunities in the markets every day, you will always be missing an opportunity to make money. You have to learn to deal with the pain of missing out on moves ALL the time as a trader. You cannot let the event bring emotions into your trading. Sometimes chasing can be the result of not understanding how markets trend. 

Not Understanding Technical Analysis

Most inexperienced traders want to buy something just because it is up on the day or sell something because it is down on the day. These incorrect assumptions often stem from a lack of understanding of technical analysis and understanding how to make a system with defined and accurate buy and sell signals. It’s easy to get FOMO when you don’t understand how stocks move. You won’t know when a stock is too overbought to buy, or too oversold to sell. You don’t know where support and resistance areas are that have a high probability of halting a stock’s advance. You need to understand technical analysis in order to have a sense of market timing. You need to have a trading system that has statistical evidence of being profitable. Otherwise, you won’t be able to identify when you are chasing, and when you are taking an entry you should be taking. RSI and stochastics are an easy way to tell if a stock is overbought or oversold. An RSI over 80 is considered to be overbought, meaning you wouldn’t want to be buying the stock. If it’s under 20, you don’t want to be shorting the stock.

How to Combat FOMO

A great way to combat FOMO is to study how many opportunities in the markets present themselves each month. When you realize that there are usually 1-3 high-quality opportunities every day, you don’t have to have a mindset of scarcity. You get FOMO because you have a belief of perceived scarcity in market opportunities. There is no reason to feel fear of missing out on a move if there will be another big mover tomorrow. When you keep a trading journal, you can easily go back and remind yourself that there are high-quality opportunities every week. The scarcity of high-quality opportunities in the market is a myth. And you only need to capitalize on a few good opportunities a month to make a great living from trading.

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Kunal Desai Administrator