Missing out on significant opportunities in the forex market can indeed seem like a huge loss. However, making decisions based on the fear of missing out (FOMO) can actually lead to more considerable losses altogether.
Understanding what is FOMO in trading and overcoming the same is essential if you, as a trader, wish to conduct a successful trading practice.
What is FOMO?
FOMO in trading refers to the fear of missing out on trading opportunities and profits while entering or exiting a trade. FOMO can affect both beginner and expert traders as it makes them excessively anxious while making trade decisions, leading them to lose out potentially more than they had imagined.
In FOMO trading, traders open and close several positions many times a day, and decisions are not taken in a calculative manner, which can, in turn, lead to a stressful high-risk trading scenario.
What triggers FOMO in trading?
1. Repetitive losses
When traders enter a position and close out too soon as the currency pair prices drop and start incurring losses, they end up in a cycle of re-entering traders as soon as the price rises back up. The re-entering happens because traders feel disappointed for not holding onto the trade for long. This leads to big losses as time passes and the trader enters and re-enters several positions in one day.
2. Continuous winning streaks
Traders who make big wins continuously for some time can become overconfident and get caught up in new opportunities. This leads to the traders entering trades with the notion that they could lose out on potential profits if they do not open the position. At times, the new positions are not as profitable as they seem and eventually lead the traders into a loss.
3. Market volatility
When the forex market is too volatile, traders are very quick to decide if they want to enter a trade or exit it. Since traders do not wish to miss out on a golden opportunity in the market, they often enter trades when the market is too bullish and exit trades when it is too bearish. However, making non-calculated decisions in the forex market due to FOMO is not a safe bet.
4. Financial news on social media
When the financial market is mixed with social media, it produces content that is not 100% trustworthy. When traders see most people winning big in the market through the news on social media, it leads to FOMO on the potential profits in the market. Following this, if traders enter or exit trades without the right research, it often leads to bad trading decisions. You should always only follow reputed, certified, and trustworthy finance news providers to make such decisions.
How to overcome FOMO in trading effectively?
1. Use technical indicators
Applying trading strategies and indicators is a must to gain a solid perspective about the forex market and where it is headed. When your indicators indicate a potential price movement, using them can help traders with the losses that FOMO can cause. Ignore the anxiety, fear, and greed that tell you to take any decision that does not align with what your trading strategies and technical indicators specify.
2. Do not trade between charts
Trading between charts just because the market is moving in a particular direction can lead to false signals. A trader must always make entry and exit decisions only when the chart has completely formed in a particular time frame to ensure that decisions are made practically and not emotionally.
3. Only invest the capital you can afford to lose
When you invest more than what you can afford to lose, FOMO kicks in exactly when the market moves against you. This is why it is crucial for you to understand that one should always invest only as much as they can afford to lose so that no decisions are made in fear of incurring losses. Stop loss and take profit orders should be set well in advance to minimize trading risk.
4. Stick to your trading plan
When you decide to trade the forex market, you create an end-to-end trading plan that includes your trading goals, objectives, strategies, and timelines. It is vital that you stick to your trading plan at all times, no matter how the market performs in the short run. If you deviate due to FOMO, you can lose out on long-term trading success.
5. Wait for better trades
Just because the market prices are declining right now does not mean that they will fall forever. Overcoming FOMO in a bearish market is essential because you must understand that there are going to be better trades and price increments in the future.
Trading opportunities come and go, and just because you missed out on one does not mean you will miss out on more. Wait for the right time to enter or exit the market because each falling market is followed by a rising one.
6. Say out loud why you entered a trade
FOMO mostly happens because we ignore logic and analysis to follow what everybody is doing. To avoid this, you should verbalize your reasons for entering a trade. Remind yourself about your trading plan and goals to realize that long-term success is more important than short-term fears. This will help you evaluate the trade practically and make your reasoning to stay in the trade clearer.
7. Understand that you are not alone
When the market does not move in your favor, it can make the FOMO intense. At this point in time, you need to make yourself understand that you are not in this situation alone, and there are several other traders facing the same. This can make your FOMO disappear as you realize that you might be losing some amount now, but following your analysis will lead to profits later.
Get over the FOMO to trade successfully
Overcoming FOMO is not a challenging task, as all you need to understand is that any trading decision made hastily is not going to reap anybody any good. It is important that you follow your trading timeline, use technical indicators and strategies, and stick to the initial plan even during times of high market volatility.