Fear of Missing Out
Fear of missing out and trading go hand in hand. The fear of missing out on potentially profitable trades is paradoxically the cause of much trading failure. FOMO causes recklessness in trading to feed a need for relief of the angst brought about by the fear.
Unless your focus is placed on preserving capital and risk management, the inevitable result is consistent losses. We all know the key to trading is choosing high probability trades and proper risk management, then why don't we do this?
Fear of Missing Out and Trading Forex
Have you ever experienced a losing streak only to result in you taking a step back to rethink your strategy? On many occasions, this renewal of a cautious mindset may have led to a new string of successive profitable periods only to be followed by another series of losses. The cause of this cyclical pattern, in some cases, is a shifting of focus from one of risk management to profit.
If you focus on managing your trades in such a way that you chose only the best setups and risk just a small amount on each trade, then this will lead to a successful period. A profitable period leads to overconfidence and laxity in risk management. Once this occurs, the focus may shift to making more which leads to the fear of missing out on any apparent profit potential. Fear of missing out and trading poorly go hand in hand.
High Probability Trades
If your focus is on the profit, you will end up taking lower probability trades. You can't focus on two things at once: both profits and high probability trade setups. The paradox is that the more you focus on profits, the more sloppy you'll become in your trading technique and the less profit you'll make. The problem with high probability trades is that they're not that common. Patience and discipline are required. Many traders don't either understand the need or method of attaining discipline and patience.
Some traders insist on a trading plan but neglect the need for internal practice/ visualization or confidence in the system. Visualization will be addressed later in more depth, but patience and discipline will come more naturally if you have faith in the system. The strong confidence in the system can be a result of backtesting and combining fundamentals with technicals. Fundamentals are helpful because they are the real reasons price moves in a particular direction in the first place.
High probability trades should be a result of a confluence of information. Fear of missing out and trading without a confluence of reasons to take the trade feed off each other. In other words, if you fear to miss a possible trading opportunity you may be less likely to be critical of the trade and therefore pay less attention to the necessary confluence of reasons to take it.
If you pay less attention to the confluences, you'll end up taking poorer trade setups which will lead to more losses. More losses lead to the need to make up for losses or revenge trading. This focus on revenge trading only leads to taking riskier trades, and the cycle continues.
Risk Management
No system is perfect; there will always be drawdowns. Avoiding fear of missing out and trading higher probability trades is only half the recipe. You must keep your risk relatively small in order to skew the possibility of equity growth in your favor. It is the lesser risk that helps retain your working capital, so you can take advantage of the bull runs when they occur.
If you don't keep your risks small then not only will you have insufficient capital left to take advantage of a winning streak, you won't have the mental willpower either. Drawdowns can have a severe effect on your motivation and mental stamina. Only realistic expectations of account gains will result in a tempered risk approach.
All of this information on risk management is good, but most traders still have difficulty implementing what they know they should do. This difficulty is where visualization fits in. It helps build up the discipline necessary through mental exercise, without having to risk real money.
Visualization
Refer back to an earlier article on visualization here. You must think of yourself as a risk manager and not a profiteer. The profits will come as long as you've done your job as an excellent risk manager. Again, risk management includes choosing the best possible trades, knowing precisely what those type of trade set ups are in advance (part of a trading plan), knowing what to risk and reward should be before you place a trade (part of a trading plan), not taking bad or even mediocre trade setups, looking for a confluence of factors that results in a high probability trade, reading the news so to understand the fundamentals behind a currency movement.
All of this and more can be practiced through visualization. Visualization should be an opportunity for rehearsal and focussing on what you need as a trader: risk management skills. You may find your mind wanders away from this focus, but visualization will help you to continue to refocus, This practice of redirecting will carry over into your real trading.
The discipline you need as a trader will, as a result, be directly related to the amount of mental practice that you do. Visualization will also help in addressing what possible obstacles you may have to endure. One common obstacle is drawdowns. You can see yourself as continuing to practice good money management skills even during a drawdown. This practice will help you avoid even worse losses.
Certainty in Trading
The sense of certainty in trading comes from knowing your system inside out. This sense only comes with real practice in real time and through imagery. Paradoxically, the more you take your attention away from making a profit and place it on risk management, the more likely you'll be in profit.
The more detailed you make your imagery, the more confident you will feel that you are a good risk manager. This certainty should transfer over to reality in the form of greater profits.
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I provided a comment on your site. That’s some really good information and explanation of how money can affect how well you’re doing.
I really don’t know how to give a constructive comment here as I have so little knowledge. Im going to follow you and learn more about it.
Wish I had the smarts to understand how the market works.
Thank you. I read a lot of news articles and work on the psychological aspect. Most of the professionals will use some form of fundamental analysis or volume analysis along with the technicals to gain an edge. Trading requires a higher EQ not necessarily IQ.
I have always thought about learning to trade but figured I’d lose all my money. I really like how this article goes into keeping the right mindset.
I may now look into trading again.
Most people will lose in the long run because it’s just as much a mental game as it is skill based. Thanks for the comment. For a good starter course in technicals read this article: https://andiamolireforex.com/what-are-the-best-online-trading-courses-part-1/
Interesting article.
Having a system based on your goals, time frame to achieve them and tolerance for risk are some of the main factors that I think are key to having a great system.
Keeping your focus and sticking to your system can lead to reaching your financial goals. I may look more into your system/program. It sounds interesting.
Thanks.
At present, I’m just passing on valuable information to others as far as what has helped me. I think what is most important is keeping the focus on money management which includes having a good reason for entering a trade. This reason will be a result of spending time researching the news surrounding a currency. You’re not managing you’re money well if you aren’t spending the time researching. With solid research comes a stronger conviction and organic trading ideas. This research fills the void that fear takes over when you don’t spend the time.