Signs FOMO Is Damaging Your Trading & What To Do About It
Forex trading is an exciting and potentially lucrative activity, and by accessing a one step funding prop firm, it’s a path that anyone can pursue. However, it’s important to be able to keep your head or you risk being swept up in a destructive tumult of emotions, which will seriously damage the outcome of your trades.
The rise of FOMO
One of the most powerful of these emotions is Fear of Missing Out, or FOMO as it is widely referred to online. This is not just for teenagers who can’t decide which party to go to on Saturday night: it’s a problem that is increasingly affecting people of all age ranges and walks of life, driven by the digital-era constant state of connectedness.
Having too much choice might seem to be a trivial or classic ‘first world problem’, but it can have a corrosive effect on quality of life, triggering or exacerbating anxiety, depression, low self-esteem, and risky behaviour. It’s this last one that forex traders need to be particularly aware of. Here’s why.
What’s the role of FOMO in forex trading?
In the context of forex trading, FOMO refers to the fear a trader has of missing out on a potentially profitable trading opportunity. It’s a particularly pernicious cocktail of two of the strongest and most primal of human emotions: fear and greed.
The trader is plagued by the sense that the grass is always greener on the other side of the forex market, and this can induce an unpleasant state of constant anxiety and restlessness. It can lead the trader to make decisions that are based on their emotions rather than rational and logical reasoning, and regular readers will know that this never ends well.
Forex based FOMO might be triggered by a rapid swing in market direction, or even by a fellow trader posting a success story on social media. This dangles the enticing prospect of making a quick profit, and the trader may abandon a solid risk management strategy and rush into a poorly thought-out decision such as entering a trade too late or exiting too soon.
Key signs FOMO is damaging your forex trading
Jumping into trades without referring to your trading strategy
If you find your adrenaline levels spiking in response to an upswing in market price, then you may be prompted to act on your impulse to turn a quick profit. Some people find this buzz addictive, and they may even be convinced that they are doing the right thing by seizing the moment.
However, contrary to popular stereotypes, successful forex trading is rarely about the thrill of the chase, but rather about developing a well-defined strategy and sticking to it. If you find yourself deviating from it as soon as the market sneezes, it’s a sign that FOMO is damaging your trading.
Overtrading
Overtrading is a real red flag in forex FOMO terms. The forex markets are highly liquid and operate almost 24/7, and this can sometimes entice inexperienced traders into thinking that there’s a better opportunity just around the corner. However, profitable forex trading is not about the quantity of your trades, but about the quality.
FOMO can lead you to trade even when the market conditions are not favourable, or to trade when you are mentally and emotionally unprepared. For example, you might be tired or stressed out from your regular job, distracted by family or relationship problems, or just not in the right mindset to be making unbiased decisions.
Revenge trading
Related to overtrading is revenge trading, which is when a trader is driven to recover their losses from a previous trade by making a risky trade. This is driven by both the fear of loss and the greed for profits, and it can cause you to overleverage, make too many trades, and oversize your positions.
Revenge trading is a dangerous downward spiral, as most of the time you will compound your losses and you may be riding roughshod over all your red flags as you do so. This can be financially and emotionally ruinous, so it’s crucial to recognise the signs and nip them in the bud.
Trading due to peer pressure
Traders can fall prey to the evils of social comparison, especially if they are big users of social media or networking forums. You might feel compelled to make a trade because you’ve just seen another trader posting about an enviable profit, or you have picked up on a ‘hot tip’ or a market rumour, and want to act on it straight away.
You may have become drawn into an online trading community, which can be a great source of support, advice, and camaraderie, particularly as forex trading is by its nature very much a lone wolf activity. However, be on your guard for any desire to try to impress or compete with other traders, because this can lead to emotional trading.
Trading due to market noise
While it’s important to keep up with economic data and key news, it’s important to maintain a sense of perspective and avoid getting caught up in news media or social media hype about the ‘next big thing’. This may lead you to following the herd rather than carrying out any proper market analysis or research.
You may also be drawn into unsuitable trades that are not aligned with your trading plan, approach to risk, or your natural trading style and personality. For example, if by nature you are a cautious person, but infectious media hype prompts you into a risky short term trade, you may soon find yourself out of your depth.
What to do about FOMO in forex trading
If any of the above signs are uncomfortably familiar (be brutally honest with yourself), then it’s important to take steps to counteract them, otherwise you will struggle to achieve the results that you deserve for your time investment. Here are some practical tips to help you combat FOMO and optimise your forex trading.
Create a solid trading plan and stick to it
You’ve probably already heard this advice many times over as you learn the ropes of forex trading, but sticking to a robust trading plan really is your best defence against all forms of dangerous emotional trading. Your plan should include clearly defined entering and exit strategies, including your technical indicators, risk management rules, and profit targets.
While your plan should not be inflexible, any tweaks and changes of direction should be separately and without reference to your open trades. Backtest any amendments until you have gained confidence in them and will have proof of workability. This will protect you from making impulsive trades that are poorly thought out and unlikely to do well.
Limit your exposure to social media and news updates
We are all living in a state of constant connectedness, should we choose to do so. Social media can be a positive influence if used wisely, but be vigilant for signs of addiction and turn off your notifications during trading hours.
Successful forex trading comes from making well thought out and independent decisions, and the distortions and hype of social media can be the enemy of this process.
While it’s important to stay well informed about economic and geopolitical news, be discerning about which outlets you follow, rather than just hitching your wagon to various self proclaimed ‘experts.’ Stick to credible sources that are relevant to your currency pairs and trading strategy, and learn how to filter out the noise.
Work on your patience and emotional discipline
Patience is often an underrated virtue in modern life, when we are conditioned to expect instant gratification. However, FOMO is a devil that feeds on short-term thinking and a desire for quick wins. Use patience to starve your FOMO and curb those impulses to react to every spike in the market.
Everyone has different ways of managing their emotions, so it might take some time to figure out what works best for you. This might be through practising mindfulness meditation; keeping a daily journal of your thoughts and feelings about each trade; or a grounding technique to prompt you to step back and take stock when the green eyed monster flares up.
Set clear goals for yourself so that you can remain focused on long-term thinking. This helps you to worry less about missing out on immediate gains, and move towards a sustainable model of trading that involves making high quality decisions rather than chasing every market signal.
Educate yourself and develop confidence in your own abilities
Above all, confidence in your trading abilities will help you to rise above emotional decisions that are driven by FOMO. This will come naturally over the months and years as your trading career progresses. Help yourself by taking every opportunity to learn about both the technical side of trading and also the psychological side.
This will not only improve your trading skills, but will also help you to become a more resilient and objective trader who is capable of generating a steady income.