How The “Fear-Of-Missing-Out” On A Trade Is Getting You Into Trouble

Fear of Missing Out A Trade

An emotion that can sometimes, always get the better of you in your trading.
 

The fear of missing out, also known as FOMO, is one amongst other emotions in trading that is put to the test, over and over again.

Before we dive into the fear of missing out, for the purposes of this article, let’s tweak the dictionary definition just a bit.

Definition of FOMO

Adapted from Google Definition.

Let's insert the words 'the market' after “elsewhere” and swap “posts seen on a social media website” with 'market indicators and criticism from fellow traders'.

Now we will read a perfect definition for a phenomenon that too many new and or inexperienced traders encounter - the fear of missing out on a great trade regardless of whether it fits into your trading plan or follows the guidelines of your risk-reward ratio.

Two Branches of FOMO

We briefly touched on this idea in The 5%ers' article that was talks about fears in trading. I would like to elaborate this to clarify a few misconceptions that new or inexperienced traders think when they approach trading.

Understanding FOMO is important because it’s the first step in the difficult journey of adjusting your mind to eliminate fear.

One of the reasons that it is difficult to rewire your brain to counter-attack FOMO is because fear works on two contrary emotions:

a. You notice that your trade has more potential, yet you don’t want to move away from it, or, b. You notice that your trade is retracing and eating your floating profit but you would like to protect your profit that's been made.

These feelings put the trader in a difficult situation. Should you have hope of a good break-even though it will be at the expense of losing? Even while, a trade is heading towards retracement or breaking even? Or can you hold on to your trade and squeeze more potential out of it?

This is the core of the conflict that creates FOMO in trading.

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Beating Buffett 1 year ago Member's comment

Interesting, thanks for sharing.

Gil Ben Hur 1 year ago Author's comment

Thank. I am always happy to share my though with people alike.