5 Tips to avoid FOMO when Trading
This article delight shares most significant 5 tips to avoid FOMO when Trading. But first get to know about what exactly is “FOMO in stock trading”
What is FOMO in stock trading ?
In the financial trading world, FOMO ( Fear Of Missing Out ) refers to the fear that a trader or investor feels when missing out on a potentially lucrative trading opportunity ( that most probably, he listened or watched in a news ) and in hurry, he starts trading without actually giving the market at least some analysis. A trader’s fear of missing out becomes greater the more the market continues to act in irrationally and rising significantly over a relatively short time.
That feeling of missing out on a trade occurs when you notice a sharp rally in a stock and feel like “I should be riding this move; I can’t let this opportunity pass me by.” In essence, the desire to join in on the price movement clouds your judgment, making it difficult for you to perform the necessary analysis of the stock before placing a trade.
Want to read more on basics of FOMO in trading ? click here : https://www.dailyfx.com/education/trading-discipline/what-is-fomo-in-trading.html
Why you should avoid FOMO in trading
When you place a trade out of FOMO, the price has likely moved from the ideal entry level by the time you entered the trade. Trades placed out of FOMO are likely to fail because the price is already extended and may be ready for a retracement or full reversal by the time you are entering the trade. Moreover, most victims of FOMO are emotional traders who don’t even use stop loss orders, so they are at risk of catastrophic losses.
Even if you are lucky and the FOMO trade urns a winner, it is still a wrong choice because that win will positively reinforce your poor trading habits and recklessness — the doomsday is only delayed!
The characteristics of a FOMO trader !
- Analysis paralysis: Some traders affected by FOMO actually see the trade setups early enough but get paralyzed in their analysis that they can pull the trigger then. When the price eventually starts surging in the expected direction, they try to chase the trade even though it has moved from the right entry level
- No risk management plan: Those who trade out of fear of missing out don’t often plan how to manage risk in trading. Most times, when they enter the trade, the price is already extended that it becomes difficult to find the right place to place a stop loss order.
- Herd mentality: A FOMO trader often likes to do things because others are doing it and not that s/he understands why those ones are doing it. In trading, following the crowd may lead to irresponsible trading and disastrous outcomes.
Tips to avoid FOMO when Trading
Follow these 5 Tips to avoid FOMO when Trading .
1.The market will always be there: Have a understanding that the market is always there, and trading opportunities will always arise, so there is no point in making one trade seem like the end of the world.
2.Use the capital you can afford to lose: It is essential not to trade with an amount you cannot afford to lose as that would raise your trading emotions, including FOMO, whenever you are in the market.
3. Keep a trading journal: You must have a trading journal where you record everything about your trades for future reference and reviews. Keeping a trading journal helps you analyzing your trading behavior and risk apatite.
4. Take a long-term view: For most investors, investing to achieve goals is a long-term pursuit. Wealth builds gradually over time, rarely overnight. Resist the temptation to panic at bad news or chase after the latest craze.
4. Overcome your behavioral biases : Seek out information that contradicts what you think about a particular investment. Give yourself a reality check. Even professional investment advisers may struggle to achieve better-than-market returns. Try to avoid confirmation and overconfidence bias.
Final Takeaway
FOMO has become a very common phenomenon in today’s world where social media makes it easy to know what others are doing. In fact, there seems to be a form of herd mentality in FOMO, which, analysts believe, is driving the irrational market rallies in the post-pandemic era. Placing trades out of FOMO results from our natural tendency to believe that what is happening will continue into the recent future, which is a common cognitive bias. In the financial trading world, every moment in the market is unique and anything can happen at any time.
Stick to your strategy, have patience while it works itself out, and have the discipline not to follow the herd from fad to fad. Remember, it’s your savings. Over a l-o-n-g time frame, a balanced, moderate-risk portfolio will leave you quite well off, and still able to sleep at night.
Read also : Covid Proof Stocks ( https://thebrightdelights.com/covid-proof-stocks/ )