Trading Psychology: What You Need To Know About FOMO


How do you overcome the fear of missing out,
or FOMO for short? Every trader at one point or another will
experience the event of seeing a stock that you wanted to buy at a lower price, move higher
and higher without you. Witnessing this is incredibly painful, and
the ultimate outcome of this is finally entering the stock near the highest point of the move
and then pulling back and stopping you out of your position. This is a cycle that doesn’t stop, and it
almost feels like the market’s out to get you specifically. The fear of missing out not only influences
our short term behavior, but it solidifies their response by creating a longterm habit. The more that you chase stocks and get stopped
out, you’re creating habits and you’re not making it easier for yourself to get out of. As you make an effort not to chase stocks,
it’ll become a lot easier over time to just say no to that feeling that you get. The most common fear of missing out inducing
scenarios are information overload, social media, poor risk management. Impatience, or just simply no rules. One rule that we use is never buy a stock
more than 2% past its pivot point. You want to buy a stock at its proper pivot
point, and when you move more than 2% pass that, we consider that chasing. If you’ve identified your risk for that trade
and your stops from the pivot point are 4%, if you now chase past that 2%, you’re adding
a lot of extra risk to your trade and you’re skewing that risk reward. If a stock moves more than 2% past your pivot
point, the best thing to do is set an alert. If it comes back, which it normally does,
we spoke about the stock usually comes back from people that were in the move earlier
taking profits, and then once it comes back in that 2% from its pivot point, you can buy
a position. Or if it doesn’t come back, you just move
on to the next trade. There’s endless opportunities in the stock
market and there’s always going to be another trade, and you have to remember that the next
time you decide you want to chase. Can you get rid of the fear of missing out? No. FOMO pops into the head of the very best traders
and the worst traders at the same time in pretty much the same ways. The difference is how you react to it. Poor traders react to it because they simply
have to. They’re under their emotions. Pro traders just ignore it. They have control of their emotions. By simply not reacting to your fear of missing
out, you avoid a ton of losses and you can make a fortune. A few ways to get past FOMO, plan your trade
ahead of time. We talk about this a lot. Always have a plan. You should always be stalking chart patterns
in advance and then be waiting for your entry to present itself. Stop chasing. We recommend not buying a stock more than
2% above its entry price. Remember, the prices often pull in to retest
a breakout point and can still act within character. This is absolutely healthy action that would
normally have stopped you out if you chased, but now you’ll be sitting comfortably in your
position. Most trades don’t go straight up. Accept the loss beforehand. Know exactly what you would lose on the trade
before you take the trade and really accept it. Understand that you don’t need this specific
trade to be successful. Rather, you need a series of trades that have
an edge to deliver profitable returns over time. Stop interfering mid trade. This is one of the hardest things to do. There’s going to be plenty of times when every
other stock is going up and your stock is doing nothing or moving down. Remember, as long as your trade is between
your predefined stop loss and your profit target, it’s still in play and there’s no
need to interfere. There’s nothing you need to do. All of your work should have been done before
the trade was placed. Finally, tune out distractions. This includes the news, social media, whatever
else is climbing for your attention. Too much information is paralyzing for a trader
and you need to tune out all of your distractions. Finally, if you take a loss, own that, try
to understand why, and move on. If you win, own that, too. You’re doing something right.

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