FOMO haunts traders of all experience levels. Fear of missing out on a big market move causes traders to make rash decisions, and costs them big money. It was one of my biggest obstacles on my path to becoming a successful trader.
For some people, missing out on a big move is worse than taking a loser. You have to master this emotion if you are going to consistently extract profits from the market. Here are 3 destructive results of FOMO, and how you can combat it throughout the trading day:
Have you ever bought the exact top of a move before? It was probably because you thought the stock wasn’t going to pullback, and you needed to be in before it went to the moon. Right as you bought the stock reversed, and you are left holding the bag. Right after you got stopped out, it started to base and then rally and continue its uptrend. But you missed because you blew all of your mental and physical capital on chasing the first push.
I’ve been there more times than you can imagine. It is rare that a stock will ever just go straight up or straight down. There is almost always a pullback during every big move. Patience for the right entry is essential for capitalizing on big moves in the stock market. Never buy or short a stock because you are scared of missing out. Write this on a sticky note and put it on your monitor: “You chase, you die”.
Even if you restrained yourself from chasing, the battle with FOMO still isn’t over. It can affect the way you perceive market opportunities after you miss the big trade. After missing the big buy opportunity, you start to see another stock make a move. It isn’t a great setup, but you don’t want to be on the sidelines again and miss another big move.
The setup ends up failing because it wasn’t a high probability play. You forced a trade because you didn’t want to miss out on another big winner. You cannot let what the last stock did affect how you perceive other stocks. It is very tempting to trade a random stock after missing out on a big move because there are so many tickers moving everyday. But you have to restrain your FOMO, wait for the best opportunities, and not force trades.
A big issue traders with FOMO have is that they think there will never be another big opportunity in the market again. They get so focused on the one opportunity in front of them, they lose track of the bigger picture. They forget there will always be another big mover in the markets. The stock you are watching will not be the last stock in history to make a 20% move.
The reality is there will be another A+ opportunity in the stock market that week. The market never fails to deliver opportunities to the long and short side, no matter the market condition. There are hundreds of stocks gapping up and down every day. Usually you can find 1-5 opportunities every day to get paid. Keeping a journal of the A+ setups that you take will help you combat FOMO. It will remind you that there is not a scarcity of opportunities in the market. There will always be another setup, and you just need to have the patience to wait for it.
If you missed Day 4 where we discussed slothfulness attachment in trading, check out the article here.
We are doing a free web-class on December 17th where we will go over my strategies for combating FOMO. We will go over all of the 7 sins in even more detail, show exactly how to overcome these, and build a bulletproof mindset. Mark it on your calendar and join us live.