I expect the S&P 500 index to trade between the recent high and low for a while, several weeks o...
The Cure for Fear of Missing Out
06/03/2014 6:00 am EST
Operating from a place of fear, instead of a place of strength, is never a good recipe for success, so John Hoagland of TopStepTrader.com offers a few tips for combating the fear of missing out.
You have been looking for this move all day. The market is finally lining up for your trade entry, but seems to be stopping short of your preferred trade location. That feeling starts to come over you, you know the one. It's the same feeling you had when you were a kid at bedtime: all the adults are awake and you’re sure that you’re missing a great TV show or a party. As this feeling sinks in, you move your entry up. There’s no way that this move is going to happen without you!
You enter the trade with compromised trade location and your thought process changes instantly. Your tolerable risk in the trade is now somewhere close to your original entry location. Now what? Do you add to the position? “Scale in” is the popular way to say “add to a loser;” I have seen many good men and women find new careers after attempting this. If you do add to the trade at your original level, your risk on this trade has tripled and you have taken a good trade idea and turned it into a mess. Thank you, FOMO. Now you are stopped out of the trade, perhaps where you should have been entering by the original trade idea, and you miss the opportunity anyway.
FOMO is a problem that is becoming worse, not just in trading but in society as a whole. Thanks to technology and social networking, we have become a society of people always looking for the bigger, better deal (BBD in text message language) and living in great fear of missing something. We seem to have this need to know what everybody is doing at all times, and we all know that plenty of car accidents are caused by this addiction. What is on your phone this second that is more important than your life or the lives of other drivers? What are you really going to miss? This is a dangerous addiction.
FOMO can certainly make a wreck out of your trading account, too. You must demand your price at good trade locations. Jumping at trades rarely works out and the damage it does to your account, not to mention your mental capital, creates major setbacks in your trading. It’s just too easy to make that move. I suggest that you always try to get your best trade location, every time. Get used to the idea of missing a trade once in a while because the market didn't give you good trade location. I know it doesn't pay the bills, but learn to revel in the fact that your trade idea was right and journal about it so you can recognize it the next time a similar opportunity arises. Managing your risk properly and preserving your mental capital will pay off in the long run.
How will you learn to keep yourself from caving in to FOMO? In my experience and the experience of many traders I have known, what has worked is designed distraction. When you feel the urge to take an action you know is out of fear, take another action. Get up and stretch. Make a journal entry. Grab your guitar. Every time you have the urge to make a trade due to FOMO, make a note of it. I believe you will see your risk decrease, your profits increase, and the development of habits that could carry you to success. Make the effort to form the habits that will keep you from being controlled by FOMO. Do whatever it takes to ONLY take trades in your best location. Nobody can do this for you, it is up to you to know yourself and to understand what makes you tick. Understand that while your emotions may be telling you to act, they don't tell you how to act. If you're anything like me, your emotions will lie to you. When you begin to succeed with this, you will then begin to be able to differentiate between impulse and intuition.
If these thoughts have somehow made a difference to you and your trading, then my goal is reached. This is each trader’s personal journey and we are all different, yet so much the same. Success is in your reach, just do the right things and trade well.
By John Hoagland of TopStepTrader.com
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