Trading EducationTrading Psychology

FOMO and Trading

Trading and FOMO

FOMO stands for Fear Of Missing Out.   This is an emotional trap of trading psychology for those who are risking actual money.  While trading simulators are perfect for perfecting your trading strategy or trading strategies. 

The reality is it is very common to be able to make money while trading “fake money”  I would say that this is a good first step.  You should make money paper trading before you start trading with real money.  

However, it is really important that the trading methodology that you are practicing has a realistic risk control in place.  Why? Because when you start to see a stock or cryptocurrency start to move and you have this strong urge to jump into a trade for fear of missing out.  

What is FOMO

Your emotional greed or is overpowering the logical part of your brain. It also can come from our need of action or stimulation. After all, how many times a day do you look at your phone to check on the news, social media, or that ding of a text that just came in.

How to overcome FOMO in trading

Step 1. You should keep some sort of trading diary and journal.  Make sure that you are reviewing your trades every day.  What did you identify that made you take that trade?  What were your risk and profit objectives?  Did you have that in place before you started trading or did you just “shoot from the hip”? How much did you make or lose?  Most important is that did you trade with your plan.  You will have good trades that lose money and bad trades that make money. However, over time good trades will make money and bad trades will lose money.  I would encourage you to read a book on trading risk if you have not done so.

Step 2. See Step 1 and also ask yourself did I jump into this trade because I was fearful of missing out on making money?   Keep this quote in mind from a successful floor trader.  “Sometimes the best trade is to keep your hand in your pockets.”

Step 3. FOMO will continue to happen but is up to you to have the self-discipline to avoid it and avoid the types of trades that can have catastrophic impact on your trading account.

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