Unbeknownst to most traders, fear does not only stem from declining stocks, it also occurs on soaring ones. FOMO, or Fear Of Missing Out, happens when you enter a trade just because you “fear” out of missing from that opportunity or move. FOMO is defined as a “pervasive apprehension that others might be having rewarding experiences from which one is absent.”
DISCIPLINED VS. FOMO TRADER
A rational, calm, and disciplined trader should trade like this: he creates a watchlist during the weekend, charts them, and prepares a trading plan before market opens. Those are all pre-market activity. He executes when his buy and sell triggers get hit.
A FOMO trader does not look for a specific setup. He’s largely attracted to volatility and buys almost passively without ample preparation. Remember the hype about the third telco during 2018? Many investors and traders experienced FOMO on those stocks that were related to that telco craze, some investors actually spent their hard-earned money and invested in without knowing the background or capability of the stock/company. Even people who are beginners in investing simply opened up accounts just because of the hype! This is not recommended at all.
It’s normal to experience anxiety when you see a stock on its way to a ceiling price, especially when you haven’t been profitable in the stock market yet and not used to missing on ceiling plays. Who doesn’t like missing on huge market moves? Naturally, no one does.
When entering a trade, it’s important that you don’t enter for the sake of not missing the move. What’s more important is to trade your planned trades since they are made at the time when you’re most objective, rational and not emotional.
- Do not wait for your trading setups and enter early before your trigger price gets hit for fear that you might miss the move.
- Do not believe that there will be plenty of other plays that the market will allow you to ride upon.
- Do not have a strategy in approaching the stock market correctly.
- Want to gain money as fast as possible because your peers are doing so well.
- Are over-confident with your trades after incurring a winning streak.
- Revenge trade after losing trades.
- Chase price as they leave your entry area/zone.
- Rely on the analysis of other people.
Then I hate to break it BUT most likely, you’re a FOMO trader.
HOW TO AVOID FOMO?
Here’s a possible remedy to cure your FOMO behavior.
- Trading is a marathon, not a sprint. Winning trades out of careful preparation benefits you in the long run.
- You cannot ride every high-flying trade. Some trades won’t be lined up accordingly with your preferred setups and strategy.
- Know then to trade and more importantly, know when not to.
- Even though we cannot be emotionless, we can actually control how we behave when they arise.
If you missed out on one high-flyer, study why you missed it. Adjust your screening strategy and forget about the “what could have.” If you’re an investor, stick with your buy low, sell high strategy. Rely on the fundamentals of the company.
The adrenaline rush from the pleasure and chance to generate money can really stick to your head and you’ll then be susceptible to give in to your emotions. Do not rely on your instincts but rather follow a structured approach in trading the market and write down your trades in your trading journal after every single trade you take.
So, set rules that will help govern your trading and follow them religiously. Structure a proper trading routine. Develop good habits to help yourself act better among different scenarios. Develop a strong will to deter your impulses. No matter how emotional you can get in the market, you should always be able to control your actions.
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