What is FOMO in trading? What FOMO is in general? FOMO stands for the fear of missing out It’s a real emotion, and if you didn’t alraeady know, you feel it in your day to day life.

In a broad sense FOMO happens when you look at what other people have, and want the same for yourself. It originates in the context of social interactions. An example may be a group of your friends having a night out that you can’t attend. You worry about what you’re missing out on.

FOMO is also an emotion that can affect your trading decisions. In this article, we will discuss what Fomo is in trading, how to avoid it, and how to deal with it.

What is FOMO in Trading?

FOMO is a term used to describe the irrational fear of missing out. It’s an emotion that can cause traders to overreact to information that might indicate an opportunity.

I would say that FOMO trading exists in all traders. When the market moves in the predicted direction, before they’ve entered, FOMO sets in.

All traders feel FOMO, the ones that suffer, are the ones that give in to their urges and struggle to resist acting. They do it anyway without the right level of thought, or take shortcuts, not following their rules. These traders have not mastered how not to react to the emotion, and be ok with feeling FOMO, regardless of the future outcome.

Fomo can lead to excessive buying and selling, which can ultimately lead to losses. It can also result in entering a trade too late, chasing a win.

Common Traits of a FOMO Trader

Follower: Following the herd can be risky. If other traders are making money, it doesn’t mean the trade will work for you. Thinking other traders “must know something that I don’t” without knowing the context is dangerous. You don’t know how they are trading and why.

Spontaneous: It’s not uncommon for a FOMO trader to “give it a go and see what happens”. Of course, this is a bad way to manage your trading. This mind frame shows indecision and ill-discipline. There is no chance of consistency with this mindset.

Overly optimistic: Focusing on how much you could make on a trade, rather than the fundamentals and risk management techniques is always a bad idea. Chasing home run trades is not a sustainable practice.

Prone to hindsight:After a losing trade, FOMO traders often focus on hindsight, telling themselves “I should have known that would happen”. Dwelling on past trades puts a trader in the completely wrong mindset for future trading. If you “should have known” you’ve already admitted that you have given in to the FOMO, and have not followed your plan.

Envious/Jealous: Jealousy can spark FOMO, if everyone is profiting from an opportunity it’s unfair for a jealous trader not to.

Short sighted: FOMO mentality is not realising that the market offers many opportunities. If you miss this opportunity wait for the next one. Short sighted traders that fixate on what could be often fail in reality.

There are several ways to beat FOMO in trading. One is to be aware of the signs and symptoms of FOMO and stay disciplined in your trading decisions. Another is to maintain a positive outlook and resist the temptation to overreact to market fluctuations.

The best way to treat FOMO is to try to avoid it as much as possible.

How to Avoid FOMO in Trading

In order to avoid FOMO in trading, you need to have a plan. As with anything, if you identify potential problems and have rules for overcoming them, it makes things easier.

Having a plan in place will help you regocnise when you feel FOMO and provide the tools for dealing with that emotion. It will help you stay disciplined and only take trades that fit you definition of a good trade.

How To Deal With FOMO in Trading

So you identify that you are feeling FOMO, now how to deal with FOMO in trading?

Overcoming FOMO is not an easy task. You’re asking yourself to ignore a natural human emotion. It’s what most traders struggle with and something that no trader is immune from.

There are ways that you can reduce your fear of missing out. These are the techniques that pro traders use to limit this emotion when trading. These are the basic building blocks learnt in most day trading courses for beginners.

It all comes down to discipline. You’ve written your trading plan which has black and white rules for what makes a good trade. If you see people making big money on something that doesn’t meet your criteria, just don’t take it. There’s no magic trick to it, it’s simply being disciplined.

How to Stop FOMO Trading

In order to stop FOMO trading, recognize the signs you’re feeling FOMO. Some common signs of FOMO in trading are feeling restless, wanting to trade all the time, and feeling excited about making a lot of money.

How to stop FOMO trading starts with developing a plan to deal with FOMO. There’s no one-size-fits-all approach to dealing with FOMO, but some tips include keeping a trading journal, setting limits on how much money you’ll spend on trading, and having rules for entering trades. Stay disciplined and only take trades that fit your definition of a good trade.

Most importantly, when you are trading you should focus on your trading. There will be plenty of opportunities that don’t match your plan. If your trading strategy is a good one, there will likely be plenty of opportunities that you can take.

Focus on YOUR Trading, Not Someone Else’s

If you’re not concentrating on what other traders are doing, then you won’t have anyone to follow. Focus on what you are doing and what your goals are.

Take your time and follow the plan you have built for yourself.

Refer to Your Trading Strategy

Your trading strategy exists as a way for you to decide whether you should take a particular trade. There are rules and criteria that the trade must meet for that trade to be valid.

FOMO may lead you to follow a trader who has a completely different strategy. It is likely that your strategy doesn’t fit the way they are trading their position.

Think about your trading strategy and ask yourself if the trade fits your criteria to enter. Do you know where you would put your profit target and stop loss for this trade? Do you have a valid reason to be taking this trade other than chasing a big win?

If the trade doesn’t fit your strategy, you must tell yourself that you can’t take the trade.

Consider the Technical Analysis

Your trading strategy will tell you important areas in price action. You have areas that you shouldn’t trade into, and areas of reversals or resistance. If taking the trade falls in any of these levels you should not be taking the trade.

You should also consult your day trading indicators for market data that may confirm or invalidate the trade. If you trust your indicators then you should listen when they tell you to not enter.

You need to be humble and accept that the market knows more than you. You can’t chase a trade, you need to understand the context and enter when your strategy suggests is a good entry.

Take an Online Trading Course

Day trading courses are essential for anyone who is serious about learning how to trade. This is where you will learn the technical analysis and build day trading strategies.

You can learn a time-tested trading strategy and set of risk management techniques from professionals.

There are some that choose to learn the hard way by becoming self-taught. You can teach yourself, but the markets often end up teaching you an expensive lesson. Traders who are not fully prepared run the risk of making big mistakes.

Make sure you learn to manage your emotions including FOMO and learn proper analysis and risk management. If you can do this you increase your chances of being successful.

FOMO Trading Bottom Line

Fomo can have a major impact on your trading decisions. However, if you are aware of what it is and how to deal with it, you can minimize its effects on your trading.

Trading is an art based on data and probabilities, when you act on negative emotional stimulus you tend to under-perform. As a trader you need to limit not only FOMO, but all of the negative reactions to the different types of emotion. It’s so easy to say, but it’s a hard thing to do.

Just keep telling yourself that you have a strategy and a plan that will help you have an edge in the markets, and there always other opportunities. Don’t get fixated and stay in that moment too long.

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