Trading Psychology – FOMO
JS-Masterclass – FOMO (Fear of Missing Out)
Definition
FOMO – Fear of Missing Out - is a relatively recent addition to the English language, but one that is intrinsic to our day-to-day lives. A true phenomenon that affects many traders and can be a major hurdle to become a successful trader.
For instance, the feeling of missing out could lead to the entering of trades without enough thought, or to closing trades at inopportune moments because it’s what others seem to be doing. It can even cause traders to risk too much capital due to a lack of research, or the need to follow the herd. For some, the sense of FOMO created by seeing others succeed is only heightened by fast-paced markets and volatility; it feels like there is a lot to miss out on.
To help traders better understand the concept of FOMO in trading and why it happens, this tutorial will identify potential triggers and how they can affect a day trader’s success
WHAT IS FOMO IN TRADING?
FOMO in trading is the Fear of Missing Out on a big opportunity in the markets and is a common issue many traders will experience during their careers. FOMO can affect everyone, from new traders with retail accounts through to professional and institutional traders.
In the modern age of social media, which gives us unprecedented access to the lives of others, FOMO is a common phenomenon. It stems from the feeling that other traders are more successful, and it can cause overly high expectations, a lack of long-term perspective, overconfidence/too little confidence and an unwillingness to wait.
Emotions are often a key driving force behind FOMO which can lead traders to neglect trading plans and disrespect their trading strategy.
Common emotions in trading that can feed into FOMO include Greed, Fear, Excitement, Jealousy, Impatience and Anxiety
CHARACTERISTICS OF A FOMO TRADER
Traders who act on FOMO will likely share similar traits and be driven by a particular set of assumptions. Below is a list of the top things that guide a FOMO traders’ behavior:
1. Listen too much to the news. ‘They are all doing it so it must be a good idea’.
2. Be too much focused on potential profits versus thinking risk first.
3. Not sure but just let’s give it a go.
4. Getting frustrated in hindsight: ‘OMG, I should have seen this coming’.
5. This will be a great opportunity and if I do too much analysis, I will miss this great opportunity.
What factors contribute to FOMO trading?
FOMO is an internal feeling, but one that can be caused by a range of situations. Some of the external factors that could lead to a trader experiencing FOMO are:
• Volatile markets. FOMO isn’t limited to bullish markets where people want to hop on a trend – it can creep into our psyche when there is market movement in any direction. No trader wants to miss out on a good opportunity
• Big winning streaks. Buoyed up by recent wins, it is easy to spot new opportunities and get caught up in them. And it’s fine, because everyone else is doing it, right? Unfortunately, winning streaks don’t last forever
• Repetitive losses. Traders can end up in a vicious cycle: entering a position, getting scared, closing out, then re-entering another trade as anxiety and disappointment arise about not holding out. This can eventually lead to bigger losses
• News and rumours. Hearing a rumour circulating can heighten the feeling of being left out –traders might feel like they’re out of the loop
• Social media. The mix of social media and trading can be toxic when it looks like everyone is winning trades. It’s important not to take social media content at face value, and to take the time to research influencers and evaluate posts.
Definition
FOMO – Fear of Missing Out - is a relatively recent addition to the English language, but one that is intrinsic to our day-to-day lives. A true phenomenon that affects many traders and can be a major hurdle to become a successful trader.
For instance, the feeling of missing out could lead to the entering of trades without enough thought, or to closing trades at inopportune moments because it’s what others seem to be doing. It can even cause traders to risk too much capital due to a lack of research, or the need to follow the herd. For some, the sense of FOMO created by seeing others succeed is only heightened by fast-paced markets and volatility; it feels like there is a lot to miss out on.
To help traders better understand the concept of FOMO in trading and why it happens, this tutorial will identify potential triggers and how they can affect a day trader’s success
WHAT IS FOMO IN TRADING?
FOMO in trading is the Fear of Missing Out on a big opportunity in the markets and is a common issue many traders will experience during their careers. FOMO can affect everyone, from new traders with retail accounts through to professional and institutional traders.
In the modern age of social media, which gives us unprecedented access to the lives of others, FOMO is a common phenomenon. It stems from the feeling that other traders are more successful, and it can cause overly high expectations, a lack of long-term perspective, overconfidence/too little confidence and an unwillingness to wait.
Emotions are often a key driving force behind FOMO which can lead traders to neglect trading plans and disrespect their trading strategy.
Common emotions in trading that can feed into FOMO include Greed, Fear, Excitement, Jealousy, Impatience and Anxiety
CHARACTERISTICS OF A FOMO TRADER
Traders who act on FOMO will likely share similar traits and be driven by a particular set of assumptions. Below is a list of the top things that guide a FOMO traders’ behavior:
1. Listen too much to the news. ‘They are all doing it so it must be a good idea’.
2. Be too much focused on potential profits versus thinking risk first.
3. Not sure but just let’s give it a go.
4. Getting frustrated in hindsight: ‘OMG, I should have seen this coming’.
5. This will be a great opportunity and if I do too much analysis, I will miss this great opportunity.
What factors contribute to FOMO trading?
FOMO is an internal feeling, but one that can be caused by a range of situations. Some of the external factors that could lead to a trader experiencing FOMO are:
• Volatile markets. FOMO isn’t limited to bullish markets where people want to hop on a trend – it can creep into our psyche when there is market movement in any direction. No trader wants to miss out on a good opportunity
• Big winning streaks. Buoyed up by recent wins, it is easy to spot new opportunities and get caught up in them. And it’s fine, because everyone else is doing it, right? Unfortunately, winning streaks don’t last forever
• Repetitive losses. Traders can end up in a vicious cycle: entering a position, getting scared, closing out, then re-entering another trade as anxiety and disappointment arise about not holding out. This can eventually lead to bigger losses
• News and rumours. Hearing a rumour circulating can heighten the feeling of being left out –traders might feel like they’re out of the loop
• Social media. The mix of social media and trading can be toxic when it looks like everyone is winning trades. It’s important not to take social media content at face value, and to take the time to research influencers and evaluate posts.
Combing the BEST of two WORLD's: Cathie Wood & Mark Minervini
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