Trading is a life-changing endeavor that can provide the freedom that few have ever experienced. It’s not all “easy street” to get there, trading has challenges along the way. Many of those challenges are deeply rooted in our ideas, expectations, and beliefs that few traders ever take the time to evaluate. Let’s talk about FOMO, fear of missing out. The scenario may unfold in the following manner: you are at the computer watching the market, logged into your trading software and seeing a trade develop before your eyes. You are diligent in your scan, calm in mind and decide to place an order. As soon as the order is placed, the price jumps as others fill their orders only to leave your order pending. This isn’t uncommon, so you refocus and decide to wait for the stock to pull back to fill your order. It does pullback, but not far enough to fill your order and continues trending. At this point, it just got personal as you see your trading window disappear. You feel like the kid that is missing out on something that everyone else gets to do.
No longer in your calm rational mind, you watch as the trend continues and think, “All these other people are making a killing". “This trend has no end.” “I don’t want to be left out.” You have just come down with the FOMO virus, and now you are emotionally reacting. When FOMO takes hold of the wheel mentally, you throw all of your trading strategies out the window. Completely sucked into the trade, you decide to buy some contracts late in the trend. Suddenly it’s like your entry was the starting gun for the stock to reverse! At this point, you have two options. If your exit strategy is still intact you can GTFO and accept a loss. Or, you think, “GTFO? How about WTF?”, and you stay in hoping the trend reverses back in your direction.
In the scenario above, your best outcome would be accepting a minimal loss. Paying some tuition out of your trading account for a lesson learned. The worst-case scenario would be you taking a profit after hanging on for the reversal back in your favor. Taking a profit in this scenario is fraught with future losses and disappointment. What? Since when is making money a negative? That's why we are here right? Wrong, a successful trade while sick with the FOMO virus only strengthens its grip on your mindset. Eventually it spreads into a plague affecting trade after trade until it has used your money to grow out of control. You end up funding your own demise. This will leave you sick with your head in your hands wondering where all of your money went.
The issue with taking a profit in this scenario, is that a successful FOMO trade is reinforcing a poor process. The process is being controlled by emotion, which in this case is fear. Successful trading isn’t about making money one time based on poor process. Money and growing your account is the byproduct of following a process over time. The process is born out of developing a proven effective trading strategy. The Cornerstone Method Coaching Course teaches a set of principles to help you develop your own proven effective trading strategy.
The emotional energy that is driving the decision to get into the trade late is unproductive and detrimental. Fear takes us out of our calm rational mind and places us into panic mode. It makes us reactive and not thoughtful. When we are sick with FOMO we lose perspective. The bigger picture here is that there were millions of trades before this one and there will be millions more in the future. We are missing out more times than we're making trades. Trading happens 24/7. The fact we saw this trend develop and couldn't get in is no different then the trades that were never seen. We may feel like it’s not fair, or get mad because we saw the trend develop but couldn’t get our order filled. Well guess what; the market, the stock, and the trend don’t care about feelings or what we think we deserve.
When you make a FOMO trade you are gambling. In this particular scenario the trend is no longer “fresh”. How do you know how long a trend is going to last? You don’t, is the answer. Therefore, your risk has increased dramatically. Since the trend is no longer fresh you are relying on market support to carry the trend forward or for the trend to develop into an exceptional trend. More likely than not the trend won’t continue much longer. So risk is high and gains could be minimal to none. By choosing to trade you are saying; to heck with a proven effective strategy, “let’s blow on the dice and let’er roll.”
A successful trader is in the business of capital preservation and risk management. FOMO ensures you disregard these two pillars of becoming a successful trader. The antidote to FOMO is as follows:
●Stick to your trading strategy - so you won’t be led to risky behavior
●Practice awareness - to recognize the signs and symptoms of FOMO
●Practice gratitude - to reinforce what you do have and to keep perspective
●Enjoy the process - take pleasure in following your process not the results. The results will come on their own.
●Abort - If all else fails and you have come down with the FOMO virus, power down and walk away.