By: Mandi Rafsendjani-one of Australia’s premiere authorities in “The Psychology Behind Peak Trading Performance”. On: April 28, 2017 In: Expert Advice, Most Popular, Trading Mindset Comments: 0

FoMO, i.e. the fear of missing out, is the most common complaint I hear from struggling traders. They say they feel helpless, at the mercy of their FOMO, unable to control the urges and temptations even though they know it’s detrimental to their trading success.

I entered the trading arena in 2002. I have since encountered countless traders, from the complete novice to the most phenomenal traders in the institutional world.

There are distinct patterns to losing traders, which I have seen over and over again.

  1. They don’t want to only make money, they want to make HUGE amounts of money!
  2. They not only want to make HUGE amounts of money, but they also want to make it QUICKLY!
  3. They not only want to make HUGE amounts of money QUICKLY, but they also want to do it in their OWN WAY! They have a DIY mentality to trading, which surely keeps them entertained, but not trained.

Ultimately they have to admit that it doesn’t work their way. They concede to the reality that they have set themselves up for failure and created the very thing they were trying to avoid: ‘missing out on profits’, staying stuck in a job they hate and suffering the pain of regret.

The fear of missing out is seriously detrimental to a trader’s career. It is a self-defeating behaviour, where the trader creates the very situation they are trying to avoid: ‘missing out’ on profits and suffering the pain of regret.

FoMO in trading is not a new phenomenon. Humans don’t change. It started in 1637, tulips in Holland traded for 5500 and then crashed to 50, a 99% loss. Well, you might say, ‘Trading was relatively new then; these people were still new to trading. Today we are so much more sophisticated with the internet and all.

Let’s go to 1929, and find a stock like Air Reduction, which traded at a high of $233 and after the crash fell to $31- a decline of 87%. Ok, you might say, ‘The roaring ‘20s were crazy times, but now things surely are different’.

Well, let’s move ahead to 1961 where you find a stock called Texas Instruments trading at $257. It eventually dropped to $49, a decline of 77%. If you think we became more sophisticated by the 1980s, all you have to do is look at silver prices, which in 1980 reached a peak $50 and subsequently fell to $5- a 90% decline.

Fast forward to the financial crisis of 2008, and yet it seems everyone has already forgotten about it.

It is very interesting to observe how some traders mistake their FOMO for a hunger for success. They consider it a competitive edge, as a positive driving force. Yet, in their ‘hunger to succeed’, these traders have a tendency to overload themselves, taking on too many positions, running overly-complex portfolios, spreading themselves too thin. They want to be in all markets at once, all the time, and capture all opportunities. This often comes from the trader’s desperation to achieve goals and objectives as quick as possible to escape a job they hate.

Most traders don’t know how they can recover from bad trading mistakes simply because they don’t understand how their mind works. They think they can use their willpower to achieve success. In my experience, willpower fails you at the worst possible moment. All those feelings come crashing in and cause you to be self-destructive and blow up your account.

Here are some examples of how FOMO can play out in your trading:

  1. You have the urge to ‘jump’ into a trade impulsively with no market-entry timing and / or you are resisting to take the loss at the required risk management level.
  2. You get out of a trade at a loss (maybe even following your exit rule), but then immediately feeling the urge to re-enter as soon as possible and make up the loss
  3. You increase the position size because last few trades have been a loser and you calculate how you can make your losses back so much quicker.
  4. You are trading too big a size for your account because you are sick of your boss and want to make higher profits quickly.

This eventually becomes a negative feedback loop, as you become trapped in an endless fight for regaining control over your losing trades.

As a result:

  • You feel overwhelmed and paralysed, blaming the market, when in reality it is your lack of self-management and poor productivity. Most probably you spend all your free time staring endlessly at screens, unable to tear yourself away for more than a few minutes because you feel you are losing control the second you lose sight of a chart.
  • You hang on for your dear life, fearing the market will turn in your favour the very moment you exit, and that you will come to ‘regret’ your exit strategy.