Hi, everybody.
Today I want to tell about interesting psychological issue that traders face with that is called "Fear Of Missing Out" (FOMO)
FOMO actually appears when one fears that everyone else is having more excitement and more rewarding experiences than you. Rapid growth of social networks had brought FOMO-effect in some people's life.
People tend to check their email every 2 minutes, renew their page in facebook or twitter. Of course, those suffering from FOMO have smarphones to "keep in touch" with the news. Their ability to concentrate on their work decreases, their relationship also tend to decay.
But destructive effect of FOMO in everyday life (when one can't stop checking his email) is slow, but when we are talking about "trading FOMO", it can easily lead to heavy overtrading and huge drawdown as a result.
You can identify features of FOMO in your trading life with a simple check-list:
1. Do I tend to place market orders most of the time instead of using limit orders?
To rephrase: do you provide liquidity or consume it? It often distinguishes good trading habit from bad one. "Jumping in quickly" works in very limited set of setups and you should have very solid understanding of those setups. Example is momentum trading, this style requires to go with the price in some situations (instead of buying pullbacks). But as I have said, market conditions must be in your favor, good momentum trade can require 2-3 days of preparation.
2. Am I searching for a "Home run"?
By "Home run" I mean rapid and big market movement, that easiliy moves your equity curve forward.
Traders, suffering from FOMO easiliy project market movements in future and tend to predict rather than to manage their positions. If you look at equity curve of consistently winning traders, you may notice that equity rapidly goes up in 25-30% of all accepted trades. Other trades tend to do small profit, to generate small loss or breakeven.
It means that nobody really knows when a "home run" will appear.
Great amount of work shoud be done in a process of filtering bad entries and preserving your capital.
"First survive than prosper" - said Mario Puso's character Don Corleone. It's absolutely right when we are talking about trading.
Best traders know that they can only project small price movements (usually next 3-4 bars), that allow to reduce their risk and let some profit run. Yet there are some trading styles like scalping when you don't need "home runs" to generate income.
3. Do I lack patience?
If you lack patience and know that, probably you should think about eliminating FOMO from you trading.
Cure for that is first increased self-awareness, second - you should probably lower stress and pressure from your trading.
Maybe you are risking too much or you lack some basic needs (want more money quickly).
Seriously consider lowering that pressure. Any action that helps is good here.
Do you have FOMO and how you try to eliminate it?
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