What is FOMO in trading
F.O.M.O....4 letters that means a lot in today's world. It even entered the Oxford English Dictionary, that defined FOMO as "Anxiety that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on social media."
FOMO is certainly not a good thing. It leads you to check social media again and again, in an almost frantic way so you don’t feel out of the loop. So you know you’re doing okay. So you don’t feel left out.
What is FOMO in trading?
FOMO is one of the worst enemy for today's traders...from twits on Twitter, to CNBC's Alerts to CNN's Breaking News...FOMO is influencing our decision-making as traders on many levels.
FOMO plays with our emotions, it makes us jump into trades too early without real confirmation, closing winning trades way too soon, drives our risk management crazy by risking too much on a news. FOMO brings the worst out of us, our greed, our desire to be rich quick and turn us into irrational beings. We want everything and are often blinded by our fear of missing that "special" trade that will turn us instantaneously into the next Paul Tudor Jones.
The causes of FOMO
1) Lack of confidence
We loose our confidence after a few losing trades, many of us will try to play catch up by entering random trades by following some gurus on Twitter, without questioning the relevance of the information posted.
2) Impatience
When you are too eager to make money or fear of losing an opportunity and you do not want to wait for the proper setup to show up on your charts, this unfortunately happens to me quite often.
3) No rules
When you do not follow a system or have a properly built trading plan. Always set some rules and try to follow them diligently.
4) No long-term perspective
When you want to force a trade no matter what it takes and not seeing the big picture or having a long term plan.
5) Over-confidence
When you feel invincible after a winning streak and think the market "obeys" you. Never forget, the market is always right!
6) High expectations
When you think that you can double your capital with one single trade. This leads to higher risk and large position sizes.
How to overcome FOMO
1) Enjoy the Present
The worst part about FOMO is it keeps you from being fully present and engaged in your trading career. Therefore the most important step is changing your mindset and perspective by cultivating mindfulness so you can focus on here and now.
Stay away from the Distractions on Social Media
Turn off all notifications, except the immediately actionable ones.
Silence your Facebook and Snap apps while trading....perhaps even try going on a social media diet for 30 days. It could change your life!
Reduce your time on Twitter, the “breaking” news or interesting conversations rarely worth the anxiety.
2) Accept That Things Are Happening Without You
Somewhere, someone is having a better day, making more money, having more winning trades, more fun and is even happier than you. And that’s totally fine.
3) Filters and rules
Rules will make sure that you remain structured and consistent in your trading. To keep you away from FOMO, you need a good and efficient trading system, with specific rules for entries, exits, stop/target, money management, and risk management.
4) Developing self-discipline and self-respect
You have to develop your self-discipline. Start small and prove to yourself that you can do things which you firmly know you are right, do not let noise interfere with your own beliefs.
5) No early candle decisions
When a candle is not fully closed, decisions are often driven by emotions and this simple but effective filter rule can improve your trading immensely.
Only look at the charts when the candle is closing and to only make entry and exit decisions when a candle is fully closed and confirmed.
6) Understand the importance of time frames on your trading
Are you a scalper, a day trader or a swing trader...its important to understand the time frame you are trading.
In the end, you have to understand that there are no shortcuts to anything worth having. That you and only you have the key to your success as trader, trust yourself and trust your trading plan. Do not let fear get in the way and always remember...there's always another train to catch, if you miss this one...who cares, just enjoy the journey and don't let all the noise affects you. Be consistent with yourself.
VTL
