Introduction to FOMO
FOMO stands for Fear of Missing Out, and is a term that is used in many different walks of life because it can cause people a great deal of stress when they think that they might potentially be missing out on something exciting, exhilarating or potentially profitable, for example.
It is also a concept that is much talked about in the world of forex trading because there will be many times when you are faced with the prospect of potentially missing out on a golden trading opportunity if you don’t take action soon, and this is not exactly a good thing because it can negatively affect your decision making, as well as your overall profits.
To demonstrate this point, I have listed below some of the negative effects that can occur when faced with the fear of missing out:
Over Leveraging Yourself
If you see what appears to a perfect set-up, it is natural to view this as a golden opportunity to make a lot of money. As a result of this, it is all too easy to use the maximum leverage that your broker will allow in order to try to take advantage of this.
The problem is that if one of these trades goes wrong, it can potentially destroy your capital as a result of being too confident and over leveraging yourself.
Entering Positions Too Soon
Another big problem that can occur as a direct result of the FOMO is that it can be very tempting to enter a position far too early when your trading criteria haven’t yet been met.
For example, if there is a seemingly high probability set-up, you may enter before the breakout candle closes to confirm there is an actual breakout, or you may enter before all of your technical indicators are in agreement because you don’t want to miss out on a big price move. This is very easy to do, and is something that most traders are guilty of doing at some point.
Closing Winning Trades Too Early
Similar to the previous point, it is also tempting to close positions far too early before your price targets are taken out when you are already sitting on a decent profit.
For example, if you were targeting 300 points from a long-term trade on the daily time frame, you may feel the need to close out your trade when you are 100 points in profit because you don’t want to see your healthy profits disappear if the price reverses back. This too is something that many forex traders will do, but it can potentially hold you back from making significant long-term gains.
Setting Unrealistic Goals
In this day and age there are multiple trading courses, signal services and automated robots being sold online, some of which appear to be massively profitable based on previous trading records and back-tests.
This can encourage people to think that they can achieve the same kind of gains themselves, either by using these products and services or trading themselves. So because they don’t want to miss out, they too will try to set themselves the goal of multiplying their initial trading capital many times over, but this is simply unrealistic and will almost certainly lead to failure. It is much better to target small and consistent gains over time.
Trading Unfamiliar Markets
In recent years we have seen cryptocurrencies emerge as a new and potentially very profitable asset class. As a result of this, FOMO has resulted in many traders ploughing a percentage of their savings into the likes of Bitcoin, Ether and Litecoin, for example, because they see this as a chance to double, treble or quadruple their money in the coming years.
They will also have heard about many of the other people who got in early becoming insanely rich, and don’t want to miss out on the action, but as many will have already discovered, trading unfamiliar markets such as this one is not easy, and can easily result in big losses, and it’s all caused by the fear of missing out.
How to Prevent FOMO From Affecting Your Trading
It is actually fairly difficult to eliminate the FOMO altogether because we all dream of making a lot more money from our forex trading. However there are certain things that you can do to prevent it from having a negative affect on your trading, and your overall profitability.
Wait for the Perfect Set-Ups
I already alluded to this earlier, but because FOMO can encourage you to enter trades too early before all of your trading criteria are met, you can sometimes get into bad trades that go horribly wrong.
Therefore it is always a good idea to wait until all of your criteria are met, or all of your favored indicators are in agreement, for example. Don’t even let FOMO enter your mind because you have to remember that there will always be other high probability set-ups just around the corner that you can trade if you miss out on this one.
Stick to Your Plan
It is also a wise strategy to stick to your initial profit targets that you set for yourself when you opened the position. Yes it’s true that none of us like to see large profits disappear back to 0, but sometimes you have to be patient if you want to achieve the really big gains, and not let fear influence when you exit your positions.
Trade Your Specialist Markets
As mentioned above, cryptocurrencies have created exciting new trading and investing opportunities, but they are still highly speculative. Therefore if you are serious about making slow and consistent profits over time, it is probably best to avoid these assets (or only invest money you can afford to lose) and stick to the markets that you know you can make money from instead.
Set Realistic Goals
The final thing you can do to negate the FOMO effect is to set yourself realistic goals and expectations. If you go into trading expecting to double or treble your money every year, or even every month, you are almost certainly doomed to fail.
Yes there are traders who have turned a modest amount of capital into a huge life-changing sum of money, but these people are very much the exception, and even some of these traders have ended up losing it all. It is much better to set yourself realistic goals and apply sound money management rules at all times.
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