What is FOMO in trading? FOMO stands for the fear of missing out It’s a real emotion, and if you didn’t already 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.

Fear of missing out is also an emotion that can affect your trading decisions. In this article, we will discuss what FOMO is in trading, how to stop trading with this emotion, and how to deal with this fear in the most productive way.

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.

This emotional style of trading can exist in all traders. When the market moves in the predicted direction, before they’ve entered, the fear of missing out will start to set in.

All traders feel FOMO. The ones that disproportionately suffer from FOMO, 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.

This emotion 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 this type of 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, 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: A fear of missing out mentality is not realising that the market offers many opportunities. If you miss this opportunity,. just wait for the next one. Short sighted traders that fixate on what could be often fail in reality.

There are several ways on how to deal with FOMO in trading. One is to be aware of the signs and symptoms 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 the fear of missing out is to try to avoid it as much as possible.

How to Avoid FOMO in Trading

In order to know how to avoid FOMO in trading, you need to first 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 recognise 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 your definition of a good trade.

How To Deal With FOMO in Trading

What kind of solutions or tactics will help you decide how to deal with FOMO in trading?

Knowing how to deal with it 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, and strategies that pro traders use to limit this emotion when trading. These are the basic building blocks learnt in most day trading courses for beginners.

Knowing how to avoid FOMO in trading 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.

Knowing how to stop FOMO trading starts with developing a plan that outlines the precautions you will take to ensure you don’t act out of 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 completely focus all of your attention 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

One of the most reliable ways for knowing how to stop FOMO trading is continuously referring 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 that doesn’t align with the way that you trade. In fact, it’s highly 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 inform you of 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 there 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 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 all of 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 FOMO in trading, you can minimise its effects on your trading.

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

Just keep reassuring yourself that you have a strategy and a plan that will help you have an edge in the markets, and it’s ok, there will always be other opportunities that arise. But don’t get fixated and stay in that moment too long.

Have any other questions about how to avoid FOMO in trading? Our free online day trading course teaches you a number of foundational strategies that can help you better manage your emotions when trading and allow you to better prioritise rational thinking in your trades.

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