Trader Insights

What is FOMO in Trading? Your Guide

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Sometimes, the language associated with trading and investing can be just as hard to grasp as the markets themselves. As part of your trading strategy, you should take it upon yourself to get familiar with the common terms that other traders in the field use, and learn from them.

One term growing in popularity within the trading industry is FOMO. You may be asking yourself, what does that mean? How does it apply in the financial world? What is FOMO in trading?

Well, our ultimate guide is here to answer all of your questions and more.

What is FOMO?

FOMO, or the Fear of Missing Out, is a term that has risen in popularity over the last decade. The term is used in many circumstances, both personal and professional, but one doesn’t have to look far to see that the term is now also being applied in many investing arenas. 

However, before we begin examining what trading FOMO is, it’s important for us to understand its definition. Wikipedia describes FOMO as:

“The feeling of apprehension that one is either not in the know or missing out on information, events, experiences, or life decisions that could make one’s life better.”

FOMO can be common in many aspects of life, but it can be particularly prevalent in trading career paths and entrepreneurship. FOMO can be a motivating factor for an individual to take action, but it’s also possible to let the fear of missing out lead you astray without the right strategies in place.

How Does FOMO Apply in Trading?

FOMO can apply to the trading world in a number of ways. Usually, trading FOMO is centered around missed opportunities and hindsight bias.

Hindsight bias is the idea that you “knew it all along” and should have made better choices with the information you had. Hindsight bias is not particularly helpful to traders and can lead to high levels of FOMO and regret. For example if you didn’t invest in a certain stock, cryptocurrency or other asset class before it exploded, but now you wish you had, especially if others did.

It’s also important to note that FOMO can be especially high if you are trading in cryptocurrency markets without a strong crypto trading framework.

Taking a look at how Bitcoin has exploded over the last couple of years alone is enough for anyone to become envious if they hadn’t previously invested. But the initial and ongoing price spike is not the only reason why traders can be affected by FOMO when it comes to trading crypto. 

Bitcoin and other cryptocurrencies are open 24/7, which means that every time you check the market you might see a price spike or dip, and that can create feelings of FOMO if you didn’t take the opportunity to capitalise on that.

6 Examples of FOMO in Trading

There are many more examples of FOMO in trading. Let’s take a look at some of the common times when you might start to feel some FOMO as a trader:

  • Watching the price of a cryptocurrency that you wish you had invested in rise
  • Seeing others make substantial gains on an investment while your returns are significantly lower
  • “Hindsight bias” – feeling like you should have bought into any solid investment before it rose substantially in price
  • Selling an investment and then seeing the price climb even further
  • Taking greater risks than usual in hopes of making up for your error
  • Being envious of other traders’ success.

Related Reading: 7 Effortless Trading Risk Management Strategies

How To Combat Trading FOMO

Whatever the cause of your trading FOMO, it is important to resist the urge to act on it and make your decisions based on an understanding of your emotions, combined with logic and reason.

By regulating your emotions and getting to know your trading personality, you can prevent yourself from making impulsive mistakes. If you focus on the facts and figures instead of getting lost in what others are doing or saying, then you will be able to take full advantage of your trading opportunities and minimise your potential risks.

You could also try taking your mind off of a certain investment in times of high stress, especially if you are feeling envious of other traders’ success. Trade on a different market for a while, or try to find something else to do, that will keep your mind clear. FOMO can be a powerful driving force for traders, but it can also lead to mistakes and poor decisions.

Never let FOMO convince you that you need to make a trade – if the choice is logical then stick with it, no matter how much others are making or losing. Be smart in your trades, and you will have a better chance of success.

You Might Like: What Does It Mean To Trade In the Zone?

Trading FOMO Top Tips

Embrace JOMO

Alternatively, why not embrace the joy of missing out in your trading journey? JOMO means that you are sometimes happy not to take a trade, as it suits your trading personality better. It could be that if you don’t feel emotionally driven or tempted by a prospective trade, then that is a sign that the conditions might not be right for a particular investment, or maybe the facts and figures tell you that it’s too risky for you. It’s okay to miss out! Focus on your wins.

It is important that you are aware of your emotions when trading, but it is also vital to maintain balance. Don’t let FOMO or JOMO affect your trading so much that you cannot make good decisions – rather, use the understanding about your psychological approach to help guide your actions and create a positive risk management strategy.

Don’t Try To Catch Every Wave

You shouldn’t try to enter into a new investment just because of FOMO. If there is no logical reason for the prospective trade, then don’t do it. For example, if everyone else seems enthusiastic about a new platform but you have some doubts about the technology and team, then it might be best not to invest.

Similarly, if you already hold a cryptocurrency and more people start buying into it after a recent drop in price, don’t let FOMO force you to impulsively buy more of that asset — instead consider doing something more logical such as selling some of your other investments to generate the capital for a new investment, or ensuring you can afford the risk first.

Maintain a Balanced Approach

Feeling FOMO is not always enough to make you want to trade, and that is OK! You shouldn’t just enter into trades because of feelings, even if they are powerful feelings such as fear or excitement. Instead, you should always remain balanced and think logically when trading.

Balance is vital in every area of your life, and it applies especially when you are trading. If FOMO seems to be affecting your judgement, then try to take a step back and look at the situation more logically.

Ask Yourself These Questions

  • Is this a logical trade?
  • What are the facts and figures here, not just gut feelings?
  • How will I feel if this trade doesn’t work out?
  • Could I find myself regretting making this investment?

Only go ahead with your investment if these questions are answered positively. Try not to give in to FOMO, even if you feel like you ‘have’ to buy or sell something right now. You really don’t have to do anything unless it makes sense for your trading plan and personality!

Related Reading: What is a Trading Journal and Why Do You Need One?

Understanding Your Trader Personality

A great way to combat FOMO in your trading career is to develop a stronger understanding of your trader personality.  What is your psychological approach to trading? Do you look for fun and excitement, or are you more logical and focused on the risks associated with a trade?

Understanding yourself will help you make better decisions when faced with FOMO. You can then create a tailored trading plan for yourself that you can stick to in times when emotions are high.

For example, if your personality means that you love the thrill of potentially high rewards but you find that high risks can be particularly stressful for you, you might need to adapt your risk management approach in response. Perhaps you need to spend more time researching the facts and figures surrounding a particular investment, or perhaps you should make a plan to sell your asset before it reaches a risk level that you feel uncomfortable with.

The trick is to learn how your trading psychology works, then make a structured trading plan to combat your weaknesses and guide your strategies. A great way to do this is by working with a trained trading psychologist who can help you understand your trading personality better and develop new, suitable strategies for making the most of trading investments.

Final Thoughts on Trading FOMO

The next time you feel FOMO rising, don’t let it take over! Take a step back and consider the consequences of your actions based on your trader personality rather than just based on ‘how you feel’. With good support and advice, you will gain the strength to make logical trading decisions instead of impulsive ones.

At Alphachain Academy, we offer expert funded trading accounts for those looking to take their trading career to the next level. Whether it’s our Global Trader Programme that suits you best or our Crypto Algorithmic Trading Programme, we have a structured course for every type of trader.

Alongside a $10-20K funded account and expert support from experienced traders, we also provide access to our in-house trading psychologist so you can combat FOMO, master your trading personality and boost your trading potential!

Take a look at our funded trading programmes today for more information!

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