FOMO In Trading And How To Beat It
Fear of missing out (FOMO) is present in all aspects of life including Forex trading. In trading, it refers to the fear of missing opportunities that could result in a large profit, this mindset leads to errors in execution and management meaning this weakness must be addressed.
Forex trading is structured in such a way that FOMO is more prevalent than in other markets because trading is open 24/5 and there are vast currency pairs to trade, so at all times you will be missing a big move somewhere.
Understanding the causes of this and dealing with them is crucial for trading profitability, all the relevant topics will be discussed:
- Factors that lead to FOMO.
- Negative effects of this mindset.
- How to recognize when you may be falling victim?
- Ways to deal with the fear of missing out.
Factors that lead to FOMO
Large market moves
It is hard to watch large moves unfold without any benefit for yourself, when markets are volatile plenty of big moves occur leading to a sense of missing out on potential profits.
Watching other traders profit
In modern times it is very easy to find somebody that is making a killing on a big market move, this leads to a sense of jealousy/ envy that you are not in the same position.
This might be a surprising one, but a trader on a winning streak can begin to feel greed and crave profit from every possible opportunity therefore it is important to manage winning streaks correctly.
A difficult one to deal with, emotions are running high when any trader is in a major losing streak. During these times it is difficult not to think of ways to make up for the losses, as a result, you feel as if you NEED to catch the next big move to get your trading on track.
Lack of a long-term perspective
Almost every new trader comes into Forex trading expecting to make quick and easy profits, the obvious side effect of this is that every major price change becomes essential for them to achieve those fast results. Impatience leads to FOMO and a catastrophic equity curve.
Negative effects of this mindset
Risking too much- Fear of missing out puts a huge amount of pressure to make profit, often this leads to over-sizing positions and risking too much capital.
Overtrading- A bit obvious, anxiety (a direct result of FOMO) leads to a trader placing more trades due to the concern that they will miss out on profits.
Breaking system rules- Following the rules of your system is hard if you are constantly worried about missing opportunities to make a profit. The fact of the matter is that no system in the world will be able to catch all market moves, so if a trader is trying to do this then they are breaking their own rules.
How to recognize that you might be falling victim?
Naturally, if you are experiencing fear of missing out then there will be signs in your trading and your thinking, some signals are:
- Thinking about the profits that you could make before placing a trade.
- Implementing other methodologies or systems that are not part of your trading plan.
- Constantly checking how much profit other traders are making.
- Having a hindsight bias i.e. looking back and feeling guilty that you did not know or predict that the market would behave in a certain way.
- Chasing a market with very strong momentum by entering at unfavorable prices or without any form of confirmation.
- Thinking about how much money you could have made if you placed trades that go against the rules of your approach, this ties in with hindsight bias.
- Impatience in execution or trade management.
Should you notice a few of these in your trading, you are suffering from a case of FOMO. No need to worry, there are many cures for this weakness
Ways to deal with the fear of missing out
1. Have a clear trading plan
Every trader should have a trading plan, without it you float aimlessly in the market. Having a trading approach solves many common trading errors, including FOMO. It is difficult to let the fear of missing out affect your performance when you have a set of rules and keep them at hand.
With a set of rules, you will notice when a potential position goes against your methodology and can remain disciplined in your execution.
2. Follow a trading process
Consistency in your actions is required if you desire positive results. With a process in place, you are less likely to pay attention to market moves that are happening without you because those movements are not on your radar, but you will still catch all the trades that are in the confines of your system, creating a win-win situation.
3. Improve your general trading psychology
Mastering the mental side of trading is just as important as the trading itself. By strengthening your psychology, you will grow your ability to remain disciplined and prevent FOMO from negatively impacting your results. This ties in with the next point.
4. Develop self- awareness
Self- awareness is not just a strength in trading, it’s a strength in life. By developing your self- awareness you will catch your thoughts and emotions before acting incorrectly, both you and your equity curve will be happier.
5. Maintain a bigger picture mindset
The fear of missing out leads to a destructive mindset that you need to be in every single trade, this is wrong! There will be other trades going forward and the market is not going anywhere. If you follow your system and manage risk there will be sufficient opportunity to reach your goals.
6. Keep a trading journal
Journaling allows you to look back on past errors and fix them going forward. You can recognize your psychological weak spots, errors in your execution and, by extension, what occurrences may lead to FOMO finding its way into your trading. In real-time, it is a great way to become self- aware of how you are thinking and acting in the markets.
7. Manage risk correctly
Poor risk management digs a hole that is difficult to get out of, the deeper the damage to your account the greater the desire to place as many trades as possible to make up for losses, FOMO is prevalent in such situations. To avoid this, and many other issues, manage risk correctly from the start.
8. Do not watch other traders
Social media makes it easy to find traders who are making huge profits when you are not, paying attention to other trader’s results’ does not help your performance! Stop this self-destructive behavior!
Every trader has experienced FOMO, and if I am being honest even the greatest traders in the world still feel it, but the masters of this game do not let it influence their actions. They simply follow their system again, and again, and again.
So yes, it is ok to feel a sense of dissatisfaction when the market leaves you behind; the key is to feel it, leave it behind, and trade your plan.
Trade your plan again, and again, and again…