After working with 1000’s of aspiring traders over the past decade, I’ve learned that FOMO trading (fear of missing out) is the leading cause of poor trading and investment decisions. It is such a powerful emotion that causes us to make the worst decisions with our money. In order to make the best decisions with your capital, you have to learn how to deal with FOMO. Every stock trader feels FOMO every day. The best traders have successful strategies to combat FOMO. Before we share these strategies with you, let’s start by talking about why we get FOMO in the first place:
Why Does FOMO Trading Happen?
The primary cause of FOMO is a phenomenon known as hindsight bias. Hindsight bias is a term in psychology used to describe “people’s tendency to overestimate their ability to have predicted an outcome that could not possibly have been predicted.” I’ve found FOMO to be most prevalent in small-cap traders, as small-cap stocks tend to make the biggest percentage moves in a short period of time. “It was so obvious that penny stock would go up 200% today.” “I could have tripled my account today.” “I would’ve bought that dip and sold right near the top.” The right course of action to take is obvious in hindsight. But was it so obvious in the actual moment before that stock made that move?
The answer most of the time is no. 9/10 times these penny stocks fade off all day when they are up 50-100%. You will lose all your money you just blindly buy and hold every small-cap stock that is gapping up for a 100%+ move. In trading, you have to make decisions based on probabilities of conditions preceding the setup, not what occurred in hindsight.
Types of FOMO Trading
FOMO will manifest its self in many different ways in your trading. Here are the 3 most common ways it will appear:
Combating FOMO and Chasing Stocks
It is an awful feeling missing out on an opportunity to make money. But it is something that you will feel on a daily basis every single time you look at the stock market. Here is my favorite strategy for combating FOMO in trading:
Turning It Into A Positive
The only thing that matters in trading (and in life) is the present and the future. The stock market will always be there. And there will always be more opportunities.
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