What Is Fear Of Missing Out (FOMO)?
FOMO, also known as “fear of missing out”, is defined as the pervasive apprehension that others might be having rewarding experiences from which one is absent.
Dealing with missed trades can be a major challenge for traders. Thinking of all of the money that never made its way to your trading account is tough, and it often leads traders to make some of the worst mistakes in the market. The FOMO can be a major barrier for traders. If you fail to understand and acknowledge it then you could be headed towards a path of destruction that you don't even know exists. At any given moment of the day, there are thousands of markets waiting for you. All those charts are moving 24 hours a day, 5 days a week, and every tick means that you could make money.
A number of studies have shown that those who experience higher levels of FOMO also reported lower levels of overall life satisfaction. This, in turn, leads to an inconsistent decision-making process and is usually reflected in inconsistent and/or poor trading performance.
Compared to gambling, when people sit down to play blackjack, everyone understands when the game begins and when it ends. After the game is over, no one can change anything anymore. You have either lost or you have won. In trading, however, the game never really ends. Even after you have closed a trade, you can always get back in. Every tick in the market is a potential opportunity for you to make more profit. When we are thinking like this, missing a trade feels like leaving money on the table.
One of the most common situations among FOMO traders is entering early in fear of missing out. They see a set-up falling into place in front of them, and then decide to enter their order early since the price is already moving with such strong momentum. They get worried that the price will continue to surge without them. The consequence is that, order is set-up before the set-up satisfies all the specified trading rules, meaning the risk management and planned risk-reward ratio will be completely off. What happens later is that the price turns before it reaches the trader’s planned entry point, and ends up losing a trade that never even met entry criteria in the first place.
Some Of The Bad Practices Common To Most Traders Include
Some traders find it difficult to carefully setup necessary trading tools they hurriedly jump to a trade while being afraid of the fact that the price might run away.
Lack Of Trading Disciplines
When a trader does not have a defined system, to begin with, he jumps in and out of positions being overridden with FOMO.
Traders are often lured to the deception of doubling the trading balance just within the short time interval. This poses a greater pressure of ignorantly entering highly risky positions.
Lack Of Confidence/Over Confidence
Either from the winning or losing streak, a trader might be keeping emotions experienced from his previous trades. This often leads to some traders opening too large positions (in the case of winning) or hastily looking for a quick recovery
As a trader, sometimes you could have a near-perfect set-up with only one minor criterion on the trading plan not being satisfied. Price moved too fast to your expected direction, while there are still some doubts to be cleared. As painful as this condition might be, it often lures some traders to commit FOMO trading like chasing the upward price movement or entering a right trade at the wrong time.
The correct approach to tackle this challenge in most cases is being patient and move on only at the right time. In order to do this successfully, we’ve put together, a checklist that could help you manage your trade, hoping when you have these rules written down, violating them becomes much more difficult, and you will end up as a much happier and more successful trader.
Adopt A Specific Strategy
First of all, you need a specific trading strategy. A strategy that gives you specific rules for entries, exits, stop and target setting, trade management, and risk management. You have to develop a simple, easy-to-follow, yet effective discipline that does not have to be hard and overwhelming. Start small and prove to yourself that you can do those things which you know are right. It is so important to understand the timeframe you are trading. How many trades per day or week can you expect? How long do you usually go without a signal and what is normal waiting and holding time?
Having a habitual routine could help you ensure you follow the best practices. It is almost impossible to miss any major trend once a thorough analysis is done before the start of trade.
Accepting The Fact That You Can’t Have 100% Winning Trades
Having it in mind that you’ve got one of the best capital management plans available, and with your reward to risk ratio at 3:1 you’re going to make a lot more cash then you lose. Your job is to find the best trade set ups and focus on the ‘entry’ levels.
Once you’ve found that the rest of your plan takes over. So, don’t stress about the result, instead focus on the next best trade that’s going to make you another 3-5% return. Of course, the emotions of winning and losing initially may be difficult to come to terms with but once you accept that’s the result of your decisions then you should relax and let the market do its work.
Adopt The Use Of Algorithmic Trading
Instead of sitting all the day, monitoring your trades, because of FOMO, you can do better with the use of bots, otherwise known as algorithmic trading. It may sound vague, but it’s absolutely the best thing for some traders, either newbies or professionals. With the use of carefully designed bots in markets, it’s easy to set up your trade and relax for the rest of the day, especially if you’ve got a full-time job. We have created an extensive guide on the best trading bots available, you can check it out here
Embrace The Joy Of Missing Out
The Joy of Missing Out (JOMO) is extremely powerful. Is brings you back to the market each day taking away unnecessary regrets. It is essential that you disconnect from the market emotions sometimes, and enjoy the freedom of the outside world if you want to be a Professional trader.