How to Handle FOMO (Trading Psychology with a PhD) // Ep. 82

In This Episode

• How to make money even when you have FOMO
• Walter's recent experience with missing a trade
• What missing a trade can lead to

Tips to Handle the Fear of Missing Out

One of the hardest situations to handle in trading is when you spot a potentially great trade, but you miss it…and it works out exactly as you planned. So in this episode, we talk about how you can reframe that experience so you don't jump in late and regret it.

Get real-life examples and useful tips on how to you can still make money.

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Walter:    Hi, Hugh. Here’s a question: How do you deal with missing out on a really excellent opportunity? So you knew it was coming. It shows up and then you miss it. I have had a few of these. Last couple weeks actually, more than a few where you know I was going to sell the USD, Swissie.

I was sitting in front of the chart waiting for it to happen and it did not retrace quite enough to where I wanted it to go and then it just went pooh! Do you know what I mean? That happened like three days in a row where that happened. It is kind of really frustrating.

So what do you do? Because you know it is like there are no moral victories in trading. It is like you miss the trade. It does not matter if you knew what was going to happen, does not matter if you were ready, you missed it. So how do you deal with that? What do you do?

Hugh:    The obvious answer is, you jump in late and you try to catch the end of it. No, I am just joking.

Walter:    That is funny.

Hugh:    I mean, that is what we tend to do and that is what I have done in the past. We have all done that in the past. It is just not getting too down on yourself I think number one. Once you start beating yourself up that is really the slippery slope that leads to over trading and stuff like that.

Number two, just realizing that there are other opportunities coming up. So just be aware of those and then number three, I would say review why you missed it, you know. Were you distracted? Were you doing other things? Maybe you should keep your chart up on a separate screen or something so that you can watch it. Those are the three things that I would say. How about you?

Walter:     Journaling like talking, writing out your emotions and stuff can really help. Obviously, we all have things that we need to work on like you said. Like chasing a trade or revenge trading or failing to pull the trigger.

There are certain things that we all need to work on as traders. One of the things that happens with like, the fear of missing out is a big one. That is a huge one and that  actually I think if you look at it, that is a big driver in the markets themselves. If you look at the big macro picture. A big reason why you have things like blow off tops, that is what we would call it in a charting sense. A blow off top where the market just kind of makes this parabolic move uphill then drop.

So parabolic move like this and then it keeps getting steeper and then it just collapses. The reason why you get those sorts of things is because the last group of people who are getting in on that trade who are buying that asset or whatever it is, that stock or getting in on that trade in currencies or what have you.

Those people are the ones that have the fear of missing out and this is universal. This is like a psychological cycle that you can see in any market. Where it gets really I mean,  Bitcoin is probably one of the easiest ones to see this at. Just because it's so pervasive in our culture. It is always kind of in the news sort of thing.

I guess you do overseas. If you are in the States, it may not be as obvious but when you are in other countries they are always talking about the exchange rate. The Pound versus the Dollar. The Aussie Dollar versus the US Dollar. So this is kind of part of the nightly news or whatever. It is always out there.

I mean, it's been a long time since I lived in the US but I do not remember that being a major thing even in the financial papers. Maybe buried somewhere but it wasn't like a prominent thing. The reason I want to bring this up to make the point, the reason why I bring this up is that you do not see the mark.

In the news like in the States, usually when they have that financial segment of the news, what they will say is, they go, “Oh, the biggest movers and the biggest losers” or something in the stock market. They might not even have that and just say that the Dow was up today or the S&P was up or the NASDAQ was up two percent or whatever and that is it. That is all you get right.

They do not say things like, “Oh, Facebook went up”. They rarely would like it if it's an IPO or something they say, “Oh, Facebook had their IPO today and it went up to, you know, three hundred percent” or whatever. They do not usually talk about individual stock. Whereas, Bitcoin is one of those things that always seems to me anyway, it's always kind of in the news.

I think that is reflective of everyone's kind of interested in it you know even if they do not buy it or sell or trade it. They are aware of it. It is kind of this new thing. It is a new thing. That is exactly right and that is like those are the type of markets that are most susceptible to the crowd in the fear of missing out.

You do not have a whole lot of traders, a whole lot of people have this fear of missing out of some you know stalking hungry or whatever. Like some IPO in New Zealand or whatever like that's not a thing. This is like a global thing and you know I hear people tell me things like, “Oh, Elon Musk said that you know six months ago over there that Tesla motors is going to start taking Bitcoin payments.”

So Bitcoins you know spiked up or whatever you know. I think the fear of missing out which we are talking about in an individual trade level, that is also in the big macro level. You'll see that repeatedly in the markets play out. It is most pervasive in those markets that everyone knows about.

The more people that know about a market, the more likely you are to get those blow off tops. So things like real estate, cryptos, anything that is really in the news and everyone knows about. I am trying to think of another example. What would be another thing like gold, like metals don't even really qualify.

Actually, do you remember — I don't know if you remember this — but like there used to be these things called Beanie babies?

Hugh:     Yeah.

Walter:    Did you ever hear about them? So there's things called Beanie babies that became super collectible. When I was really young there was a thing called Cabbage Patch Kids. We actually stood in line outside of a department store overnight. Camped there to save our place in line so that we could go into the store in the morning.

Go and buy you know one Cabbage Patch Kid per kid or whatever that was the deal. It was like this crazy thing and then later on, there were Beanie Babies. Where there's like these really expensive things and I will never forget. There was this fundraiser where this girl you know, she was like ten and she had all these Beanie Babies.

She was donating them to the fundraiser and then this football player guy, this big, husky guy went. He bought like he bid on the Beanie Babies basket of this ten-year-old girl. He bought them all for the fundraiser and then he gave it back to her. It was like thousands of dollars for these Beanie Babies because they were so collectible. That's another example.

Beanie Babies would think that kind of Cabbage PatchKkids was another one. They kind of like the whole culture just you know and there's this crazy fear of missing out. I think Tickle Me Elmo was also one of those things like a while ago. With these weird things that like everyone just has to have and they have the fear of missing out. So they just do whatever they can to get it.

Hugh:     The big one right now, I think it is NFT’s.

Walter:    Yes.

Hugh    Recently, it has been NFT.

Walter:     Yes, I think you are right. I think you are an early adopter. When we used to be able to go to dinner, we are no longer able to go out for dinner but when I went to dinner with my kids a couple months ago, there was a friend of ours and his daughter. His daughter is friends with my daughter.

I did not realize they were at the restaurant next to the restaurant we were at. It was right next door and we both saw each other at the ice cream shop. I am like, “What are you doing man? What is going on?” Because he's like a programmer and stuff. He's kind of in between figuring out what he's going to do and he's like, “Oh, I am doing NFT’s now.” I am like, “Really?” He's like got this artist on there and everything.

He's selling these and he's got NFT brokerage. I think you are right. It is one of those things where like people are just going to go all in on this. It is because we are learning, everyone's learning about it. So they are like, “Okay, I do not want to miss out on this like I missed out on Bitcoin” or whatever.

So I think you are right. This is the next thing for sure.

Hugh:    That's a good point on Bitcoin and all that stuff also because like in cryptocurrencies even if you miss that big run, you can always get a better price. I try to scale-in, scale-out. I always do not get the best price because it just keeps going down and down and down and then you are like, “Okay, that's a base and it is going to go back up”.

I mean, that is one thing to think about when you are suffering from FOMO also. It is like there is probably going to be a better price at some point. So just hang on and you do not have to worry about getting in right now.

Walter:     That is one of my big things. One of my big rules is exactly what you said. If you feel like you are going to miss out, remember you can always wait for one more candle, one more day, one more hour. You get a little bit of extra information with that extra candle.

It is often the case because of the cycles. In the markets we kind of have these cycles where certain times of the day you know there is a lot of volume and then it kind of tails off and that. Let's say, for example, you were trading the Pound. You saw the Pound ramp up during the London open and you felt like, “Darn, I really wanted to get in on this reversal but now it's blasted up again and I missed it.”

You can always wait for the next cycle. If it is a bullish trend, if it is really strong you are going to see it eventually do those pullbacks like you say. You are always better off I think waiting for those pullbacks. I mean, you could trade the breakouts like if it is basing up or whatever. You can trade the breakouts and stuff like that.

A lot of trend followers will do that. There is nothing wrong with that but if you are trying to, you know have a tight stop and all that sort of thing, you have got to wait for the pullback. If it is already gone like that happened to me last night. Last night for twenty-four hours, I had been waiting for these trades to happen on the Pound, Swissie; the Aussie, Swissie all these trades totally waiting.

I am like, “Okay, tomorrow London session. Early going to go in. These are going to peak up after they are going to retrace during Asia and then they are going to go”. All of them did that. However, all of them did that an hour before Frankfurt.

So Frankfurt opens an hour before London and they actually did it. Like, at the opening of Frankfurt they made their highs. I was a little bit late. Basically I was two hours too late. So I came in and all the charts had gone. I am like, “Well, you know, there is nothing I can do. I am not going to get in now because it is going to retrace now”. It did retrace.

It retraced all during the New York session, all of those. So you just have to wait. There is always another opportunity. That is the great thing about the markets. There is always going to be another opportunity. That is something I think we should tell ourselves when we are worried about missing out, for sure.

Hugh:     Totally, on that note that is a great place to end. So thanks, Walter. See you next time.

Walter:    Alright, thanks!

Hugh:    All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.

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