Factors That Can Trigger FOMO Trading

That Fear of Missing Out on Things Makes You Miss Out on Everything.

Etty Hillesum

FOMO Trading, or the fear of missing out on trading opportunities, is a REAL thing that every trader encounters at some point during their trading career. We have already gone through how to battle the FOMO in trading in our previous blog. This time we are looking at the factors that trigger the trader to execute FOMO Trading.

There are two types of FOMO attributes that traders use to make decisions. Let us give a brief overview of it:

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FOMO From Outside the Market

Increased Market Volatility:

A trader is more likely to feel fear of missing out (FOMO) when the market is more volatile and the price keeps going up or down. They see the swing going in one direction, and he or she may be tempted to enter and ride it. Traders will sometimes buy a financial asset just because its price has been going up for a long time in a strong way. This is called “following the trend.”

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News:

A trader may decide to get into the market in response to certain news so that they don’t miss a chance to make money. Traders may have a greater feeling of isolation upon hearing a rumor that is widespread; they may believe they are out of the mainstream.

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Financial Forums on Social Media:

Social media has one of the greatest influences on people’s trading decisions. As we already know, in 2021, a Reddit community (Wall Street Bets) temporarily broke down the entire hedge fund system by grouping up and trading at GameStop. There are many social media forums where traders discuss their trades. The mix of social media and trading can be toxic when it looks like everyone is winning trades. Just as people lost an enormous amount after the banks started to revive, taking trades based on social media will definitely have its fall. It might have helped on the last trade, but on the next trade, it could ruin it.

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A Long Winning Streak:

A long winning streak is always a silver lining on the path to trading success, but it is not a consistent status, especially in the trading world. At some point, this period’s high level of self-confidence often turns into an obsession with trading and trading for no reason. Most times, the market acts as accurately as you predict, but the moment self-confidence turns into obsessive random trading, the market will be bound to fall. The inevitable losses can get catastrophic.

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A Losing Streak:

A losing streak may make you hesitant to trade when favorable conditions arise. Later, when you see that the price is heading in the anticipated direction, you may be tempted to chase the trade out of fear of losing your only forecasts. Furthermore, your eagerness to recover what you have lost may cause you to place yourself in a situation that might result in a catastrophic loss.

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Getting A Tip:

A trader may get a tip that a particular trade is about to make a huge move, and out of fear of missing out, they immediately buy/sell it without any further analysis.

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Inner FOMO Of A Trader:

Greed & Impatience:

A trader with FOMO wants it All NOW. If this is how you feel while trading, then fear of missing out is obviously an issue for you. Instead of concentrating on the appropriate execution of trades, you always tend to focus on how much you can gain from each trade.

When you do not want to wait for the setup and want to enter a trade immediately out of concern that the price may get away from you. FOMO traders are quite impatient. Afraid that the price would run away, they do not want to wait for the setup; instead, they wish to enter a trade immediately. Some traders just have very high expectations. They trade impulsively in an attempt to multiply their money in a few days.

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No Long-Term Perspective

Many beginners put too much emphasis on one trade and want to win by any means possible. FOMO traders seldom approach trading with a long-term perspective. If they do, they will realize that hundreds of fresh deals are awaiting them and will not put a great deal of significance on a single trade.

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High Expectations

When you believe that you must double your account balance before the end and that you are losing out if you do not make a lot of money quickly. This leads to higher risk and huge position sizes.

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No Rules

FOMO traders often lack trading strategies. FOMO is your natural state if you lack structure or guidelines to begin with and are constantly entering and exiting the market without a clear plan. They randomly engage in trades. When the price is going in one direction, they believe it will continue to go that way forever.

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No Risk Management Plan:

Those who trade out of fear of missing out do not often consider how to control risk in trading. When they begin the trade, the price is usually already extended, making it difficult to find a suitable location to set a stop-loss order.

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Lack Of Confidence

After a few losing trades, many traders will try to catch up and then enter random trades just to get into the market and hopefully somehow generate a profit. Unfortunately, they left themselves more exposed to loss. Some traders just lack the ability to make the right decisions, although this is important to trading. A trader is constantly making decisions, such as whether or not to enter a trade, the size of the position, and where to set the stop-loss and profit target. Indecisive people are more prone to FOMO.

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Overconfidence

When on a winning run and feeling invincible, traders with FOMO may make random trades or take excessively large positions because they think they know what the market will do next. A widespread belief is that if one is in a trade, the market will continue to move in the same direction.

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Following The Crowd:

A FOMO trader often engages in trades simply because others are, without understanding why. Following the crowd in trading may result in reckless trading and terrible effects.

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Analysis Paralysis:

Some FOMO traders recognize trade setups early on, but their analysis paralyzes them before they can execute the trade. When the price finally starts to skyrocket in the direction they thought it would, they try to keep the trade going even though the price has moved past the best point to get in.

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To conquer FOMO in trading, you must control your trading emotions, including greed, envy, jealousy, impatience, fear, thrill, and anxiety. These feelings keep you in the FOMO cycle, where you invest at the market’s peak and sell at the market’s bottom due to fear, anxiety, and impatience, just to be compelled to buy again during the booming market. To prevent these, read How To Battle The FOMO In Trading.

Michael Scott
Michael Scott

7 Responses

  1. Thank you so much Anisha.
    Also, the main reason for fOMO, is not knowing what you are doing in the market. if a trader has a solid and proven trading system, there will be no room for FOMO.

  2. Hi, I rely on to my automatic strategies, I built them, test them and monitor their behavior, if there is something wrong I replace strategies to new. FOMO is not my problem. Regards Greg

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