In This Episode
- The slippery slope when you give in to FOMO
- Where to draw the line with trading systems
- When you should forgive yourself
How to Deal With Trading FOMO (Fear of Missing Out)
All traders have experienced FOMO at some point in their career. It's a natural human emotion.
But like most instinctive emotions, FOMO does not help in trading.
In this episode, we go through the different types of FOMO and the specific things that you can do to overcome them.
Read the Transcript:
Hugh: Hi, Walter. What do you think of FOMO? How to deal with FOMO? You missed a trade. It's a really good trade that turned out to be a big winner. How do you go forward?
Walter: It comes in so many forms, doesn't it? You could have a situation where you missed on the trade and the trade went just like you thought. For whatever reason, you went around the computer or you didn't block out that time or maybe you're on an airplane. That's happened to me before.
As we're recording this right now, no one's going on any airplanes. The airline stocks are tanking. There's that and there's also the other bit. I think it comes in when as a trader you get a little bit more advanced.
You are like, “Alright, I have this trade and I was in it but then I got out too early. Oh my god, it's gone another five hundred pips” like, there's another FOMO. That's dangerous too because that can lead you to tweaking your strategy.
Which maybe it's a good thing but a lot of times that's a slippery slope too to go down that path. You start changing your system because of one sort of, we might even call it an outlier trade that's not very common. That's tricky. That's definitely a tricky road to go down.
So I think you really have to put in perspective too and say, “Why do I feel like I'm missing out? Why? Is it because my exit strategy doesn't capture the big moves? Is it because I want to trade more often and I feel like I'm under the gun to up my income from trading so I can quit my job.”
What's the motivation going on? Is it because all the headlines, all the news is saying to buy gold and I didn't buy gold. Where is it coming from? I think as traders I feel like our job is to put, the pressure should really be coming from our system rules.
I know that seems kind of weird. What do you mean system rules? but I think most of what we do, we should really strive to point back and say, “Okay, the reason I did that is because of my system rules.” You can argue whether or not those are correct or not.
You might look at my system rules and go, “Dude, what are you doing?” That's okay with me. That's totally cool with me. As long as I can look at myself in the mirror and say, “I did the right thing. I took the right trade. I followed the rules” that's really important to me.
I don't know if you remember this but remember at the London Conference we did with Reima? Reima is a great trader. I think someone asked him during his presentation about trading big shadows. They were saying, “Well, what if it's almost a big shadow but it doesn't quite like it misses it by a few pips?” or whatever.
He's like, “Dude, you’ve got to have the line somewhere”. He's like I won't take it. That's how firm he was. If it doesn't fit my characteristics, I'm just not going to take it. I think that's actually a really good thing.
I know people kind of rail against that but I think the problem is if you don't follow it in such a strict manner, you just run the risk of blurring all the lines. That can lead to problems especially in the beginning. I mean, with experience comes a little bit of discretion.
But, I really do think if I had two traders and I knew one of them was really conscientious and he was going to follow his rules, and the other one is like she was a little bit more wild and a little bit crazy, I would bet on the more conscientious trader.
Who's going to let trades go and have that FOMO, and miss out knowing that he's going to stick to the rules regardless throughout any sort of market situation. So to me I think the pressure should come from your rules.
Hugh: It's a great point.
Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.
At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.
So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.
Hugh: At least for myself, I think one of the issues was taking everything personally like being wrong and that was a reflection of me somehow. I was wrong in that trade, so that's why I'm beating myself up about it.
I think once you can learn to forgive yourself for that and just kind of move on to the next one like you said follow your rules, it becomes much easier.
Walter: We can all learn a lot from the sports psychology stuff. Think about the greatest batters in baseball history. Seven out of ten times, they sit down. It's only three out of ten that they actually get on base or may hit the ball or whatever. That's just what’s going to happen and it's the same thing as using the NFL.
I like to follow the NFL. So gridiron, we call it here in Australia, the players who get burnt like the cornerbacks, so they're the defensive players that get burnt. And so people are scoring touchdowns like they have this thing called a short memory.
I’ve got to have a short memory. Just go back to the next play. The only thing I can control is the next play and this mentality. If you can sort of adopt that, maybe read some of those books about sports psychology you can kind of get that mindset.
Really the only thing that matters to me is my next trade. If I screwed up the last trade, if I flubbed up the exit, if I ruined the entry, if I got my risk wrong or whatever like there was a guy in the forum, he accidentally had a trade size. It was ten times bigger than he wanted.
So he fat-finger this trade like it doesn't matter next time. It doesn't matter because it's a new slate. You start over. You just follow your rules again. All that stuff has happened in the past, but the problem is, it's so hard as a human to let go of that.
Hugh: It is. It's really hard and I don't know why we just feel like that or something like some of us have that tendency to take it personally.
Walter: Maybe it's adaptive. Maybe when we were in the jungle as hunter-gatherers, we saw a grandma eat that green berry and she died. So we're like, “Okay, I’ve got to stay away from the green berry”. Maybe that's where it comes from.
It's just like we always kind of, we’re fluid in our behaviors and adapting. That might be like an adaptive trait in most life but obviously not in trading. Obviously not. It's really hard to make trading work if you're if you're continually changing.
Hugh: Good point. Short memory, remember that.
Walter: Actually, yeah.
Hugh: All right, thanks.
Walter: Thanks.
Hugh: All the information in this podcast is for educational and informational purposes only, and is not trading or investment advice.
Enter the Monthly Contest
We give away a trading prize every month, so be sure to enter to win.
You can win by doing one or more of the following:
Each action counts for one entry in the month that it was posted. We will pick a winner at random from the entries that month.
The giveaways can include books, coaching sessions, trading tools, or surprise gifts.
It will usually be something that will help you improve your trading psychology.
Listen to the Audio Version
Click the play button below to hear the audio-only version. You can also download the mp3 file below.
Podcast: Play in new window | Download
How to Get New Episodes of The Think Profit Podcast
You can get notified of new episodes of the podcast by subscribing to our email list, or subscribing via any of the major podcast platforms that can be found here.
If you enjoyed this episode, a 5-star review on your favorite podcast platform is always greatly appreciated!
Thanks for listening and we hope that your trading is going well!