What Is the Fear of Missing out (FOMO) in Trading?

FOMO, or the Fear of Missing Out, is a common issue where traders feel anxious about missing a potential profit. This can lead to entering trades too late or getting caught up in market hype without proper analysis.

What is FOMO?

FOMO represents the anxiety or fear of missing a potentially profitable trade, causing traders to open positions impulsively, often without reasoning. Sometimes, the so-called “opportunity” might not even be a viable one, but the urge to not miss out can cause a trader to act anyway.

FOMO can appear in many ways, but a typical scenario happens when a trader misses an ideal entry point and then jumps into the trade late. In these cases, they often justify their decision by telling themselves they would have entered at that price point eventually. 

However, once a trade setup is complete or a setup is broken, the probabilities of success change. This is often overlooked when a trader enters a position late, making the trade far riskier than initially anticipated.

Another common form of FOMO is during periods of herd activity. Imagine there’s a trade setup, but it coincides with volatile movements. Traders know that their strategy or method tends to be less reliable during these times, and the best course of action would be to filter out the opportunity. However, the excitement of high volatility can lead traders to focus on the potential profits rather than the risks, causing them to enter trades.

Both of these situations, entering a trade late or getting swept up by volatile activity, can negatively impact performance. We need to stay aware of how much we justify our decisions in these scenarios.

Other examples of FOMO include:

• Re-entering a trade after a stop loss has been triggered without having any clear criteria for re-entry.
  
  
• Taking trades simply because everyone else is talking about them and feeling the pressure to join in.
  
  
• Entering a position immediately after major news events, when price movements are heavily influenced by market reactions, without properly assessing the risks.

How To Deal With FOMO

FOMO is a powerful emotion in trading, and if left unchecked, it can lead to impulsive decisions and unnecessary losses. To deal with FOMO, you can incorporate these strategies:

1. Acknowledge FOMO: Recognise when FOMO is influencing your decisions. It's common in uncertain situations, but acknowledging it allows you to address it rationally.

2. Temporal Distancing: Use mental time travel by asking yourself, “How will I feel about this decision in the future?” This helps you project future emotions, reducing impulsive decisions driven by fear.

3. Track Your Emotions: Monitor your emotions during trading. By anticipating, noticing, and naming your emotions (such as FOMO), you can better manage them. Reflect on these in the future to identify patterns and learn from them.

4. Focus on the Long-Term: Instead of being swayed by short-term opportunities, take a broader perspective. Ask if this decision will lead to a positive outcome over many similar trades.
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5. ‍Embrace Uncertainty: Markets are inherently uncertain, and you can't capture every opportunity. Accepting this helps you resist the temptation to act out of fear.