The fear of missing out spans many areas of life, and it's one of the biggest challenges day traders have to deal with. Your ability to handle FOMO the right way has a direct impact on your profitability.
What triggers FOMO?
Various causes trigger the fear of missing out. Here are the most common ones in day trading:
Non-existing Trading Plan
The fear of missing out may lead to unexpectedly high trading activities. It would be best if you defined precisely when to trade and why. A trading plan is a pre-defined set of rules with clear definitions on when to enter a trade, how to manage it and when to close a position. A clear set of rules will enable you to write a meaningful trading journal. The combination of a trading plan and trading journal allows you to discover your biggest strengths and weaknesses. Once identified, you can focus on strengthening your strengths and excluding strategies leading to weak trading behavior.
Misunderstanding about Probabilities
The chances of making a profit or a loss are 50%/50% with each trade you make. You define your strategies and trading plan to lean the probabilities of success towards your goal of making more cumulative profits than losses. But no matter how well you design your trading strategy and plan, losses are always part of trading. It is your responsibility to manage all profits and losses in an acceptable way to generate a cumulative net profit.
Breaking the Rules
You have a plan, and you trade the plan. In the first 10 days of trading, you made profits with your strategy and are confident to make money today in the way you did before. You start your trading day at 9:30 a.m. EST. And then it happens. Your first trade is a loser, and this makes the day different from any trading day before. You followed the rules and made a loss. If you conclude that you now have to break the rules to make profits, then the downward spiral will begin.
Day traders want to see fast-moving stocks with huge gaps and high volatility caused by major news events like earnings announcements. But what happens if your pre-defined stock scanner doesn't come up with results? You may overcome the fear of missing out. You spontaneously change your scanner settings since there must be a stock today to make money. Wrong! The art of handling FOMO is to turn off the computer on that day to enjoy a day without trading by doing things you always wanted to do but never had time.
Social media platforms are full of success stories. People post incredible profits and share glamour lifestyle stories. But even if the shared stories are true, what do you know about the other 99.99% of their life? You may feel in a rush since other people seem to be successful. If this type of information negatively influences your trading, it is time to rethink social media activities.
Day traders use intraday-time frames and often execute more than 100 trades per day. That doesn't mean that you have to start the same way. The higher the time frame, the better your chances of following the trading plan. It is more challenging to make 100 trading decisions based on a 20-tick chart than trading on an intraday chart with a 15-minute time frame. A 15-minute chart gives you a long time to check if a trade is valid, if the order is placed correctly, how the order was executed, and you also have time to place your stop-loss order. A small chart-interval triggers the fear of missing out more frequently.
How to Deal with FOMO?
Accept: The first step in the right direction is to accept that the fear of missing out will always be part of trading. FOMO will be there, even with 20 years of experience in day trading. Accepting that FOMO is there helps you to identify whenever you get trapped. The trading journal is your best friend to document your trading behavior and emotions.
Prepare: Having a plan and trading the plan is another essential element to minimize FOMO's negative impacts on your performance. A well-defined set of rules helps you to make the right decisions at the right time.
Practice: Often overseen, becoming a pro in order handling is one of the most important skills for a day trader. Trading with hotkeys or mouse-clicks makes your trading more efficient than manually entering order details a couple of times per day. A typo when choosing the number of shares, limit price or stop price may end up in losses and can trigger FOMO.
Watch out: Every activity besides your trading can harm your results. Day trading needs 100% of your attention. If you notice that you are particularly susceptible to distraction on a specific trading day, or if something goes wrong, quit trading for the day.
Learn: The journey never ends, and even with profits of $10,000 you will face the challenges of FOMO. If you can make $10,000 a day, why not $100,000 by just trading 10 times higher share sizes? Once you tried to place a market order buying 20,000 shares on a small-cap stock, you will realize that you shouldn't have blindly tried it. Sometimes you enter a long position at the high of the day, sometimes your order gets only partly filled, and sometimes your order gets executed with unexpected high slippage. The importance is to learn from your mistakes in all situations of trading and life and to accept things you cannot change.
A well-defined trading plan will help you to avoid the fear of missing out as well as possible. If you notice that you have the best results when:
- Spending 30 minutes before the market open on stock market news research and analysis,
- Preparing the trading platform applying the filtered stock symbols to the charts,
- Trading one specific long-strategy in the first 60 minutes of a trading day on a 5-minute chart
- Using a candlestick chart with a 50EMA and the volume indicator applied to it,
then trade exactly that way. Write your trading journal and learn from your mistakes to become a better trader. If you notice that you got caught by FOMO, make sure to manage the risk by scaling out of open positions and turn off your trading platform. Start a new day with a positive mental attitude. The markets are here today, and they will be tomorrow.