Today, we would discuss what is arguably the greatest challenge every trader (new and old) faces, which is, F.O.M.O in Trading.
Many traders have suffered terrible losses at the hands of this one challenge.
In this article, you will learn;
- What FOMO trading is
- Why people FOMO-trade
- Why FOMO-trading is bad for your trading career.
- How to control yourself so you don’t FOMO-trade
WHAT IS F.O.M.O TRADING
FOMO is an acronym that stands for “Fear of Missing Out”.
It is the fear of not being included in something (such as an interesting or enjoyable activity) that others are experiencing”. -Merriam Webster Dictionary.
In forex trading, this refers to the fear of missing out on profitable trade positions.
Another name for this action is “price chasing” and it happens more often than many traders would like to admit. It is the prevalent cause of “blown accounts”.
WHY DO PEOPLE F.O.M.O TRADE?
The first lesson you need to learn about forex trading is that it can be quite emotional and the simple reason for this is because your money is involved.
This self-realization is absolutely necessary, as the great philosopher Socrates said “know thy self”, and that is foundational to true wisdom.
Anyone can be a great trader on a demo account, the real test comes when you’re trading with your own money on a live account.
This is why it is popularly said that a great trading plan is made up of 30% strategy and 70% psychology (emotional control).
It is very likely for a trader with a relatively poor strategy but great emotional control to be more profitable than another trader who has a great strategy but poor emotional control.
One of the most dangerous emotions to allow in your trading career is, “IMPATIENCE”.
Impatience would make you risk more than you’re willing to lose and definitely lose more than you’re consistently capable of risking, which ends in you burning your account.
This impatience is exactly why many people chase price.
It makes traders either enter a position too early or try to still join a move that has already left them behind and both of these actions expose you to more risk than is safe to assume.
WHY IS F.O.M.O TRADING BAD?
As said in the previous paragraph, FOMO trading has caused a lot of traders to expose themselves to unnecessary risks either by entering positions too early or joining too late. In both cases, the trader is left in a position where he/she can not apply strict risk management.
The moment risk management is taken away from Forex trading, what is left is simply gambling and gambling is not a strategy that can guarantee you consistent earning in your trading career.
Needless to say at this point,
“If you don’t have a trading plan, you’re just chasing the wind and would soon get blown away”
HOW TO OVERCOME F.O.M.O TRADING
You must understand that in Forex, no particular person can control the market. The market does what it wants to do and we only trade what we see. When people fail to realize this and want to always be right, they end up getting burnt.
Also, there would always be countless opportunities to make money in the markets. One opportunity missed, doesn’t mean another would not come so, BE PATIENT!
Now, let’s be real…
I know all of that can be quite hard to do, so here's more practical advice on what to do.
- When you miss an entry opportunity after you’ve analyzed, immediately close your trading platform for a while and walk away. Then come back later to analyze and look for another entry in the market.
- Have an accountability partner who can hold you accountable for your decision to stay off trading when you’ve missed a chance to enter. Don’t just trust your strength, leverage your company.
That’s all for this week on our article digest!
Thanks for reading through.
What other advice would you give Forex traders like you on how to overcome F.O.M.O-trading? Share with us in the comments section.
Looking forward to reading from you!