What is FOMO in trading?

Dealing with the fear of missing out – or FOMO – is a highly valuable skill for traders. Not only can FOMO have a negative emotional impact, but it can also cloud judgment and overshadow logic, which is problematic when making trading decisions.

So what is FOMO in trading? It’s the fear traders get when they think they might be missing out on big opportunities, or that other traders are more successful. Traders who understand FOMO, where it comes from and how they react to it are in a strong position to tackle it at its root cause: the innermost workings of their own mind.

This article will help you get to grips with your FOMO, offering solutions to stop it in its tracks – or even to prevent it from arising in the first place.

Where does FOMO in trading come from?

FOMO in trading has deep-seated emotional roots and it stems from our interconnected daily lives. The modern trader lives in a world where social media is commonplace and they are bombarded with stories of others succeeding.

FOMO can stem from various feelings and emotions that occur during trading, including fear, greed, jealousy and impatience. The fast-paced nature of trading means many situations can drive these emotions. From newsworthy events to sudden market movements to something as simple as a conversation with another trader, there are many things that can kick off a bout of FOMO.

What factors can trigger FOMO trading?

Some of the external factors that can lead to traders experiencing FOMO are:

• Volatile markets. FOMO isn’t limited to bullish markets where people want to hop on a trend – it can creep into our psyche when there is market movement in any direction. No trader wants to miss out on a good opportunity
• Big winning streaks. Buoyed up by recent wins, it is easy to spot new opportunities and get caught up in them. And it’s fine, because everyone else is doing it, right? Unfortunately, winning streaks don’t last forever
• Repetitive losses. Traders can end up in a vicious cycle: entering a position, getting scared, closing out, then re-entering another trade as anxiety and disappointment arise about not holding out. This can eventually lead to bigger losses
• News and rumours. Hearing a rumour circulating can heighten the feeling of being left out –traders might feel like they’re out of the loop
• Social media, especially financial Twitter (#FinTwit). The mix of social media and trading can be toxic when it looks like everyone is winning trades. It’s important not to take social media content at face value, and to take the time to research influencers and evaluate posts. We recommend using the #FinTwit hashtag for inspiration, not as a definitive planning tool

Stuck in a FOMO rut? How to deal with FOMO in trading

Putting a stop to your FOMO isn’t a quick fix, so don’t feel disheartened if you find feelings of FOMO creeping in from time to time. Dealing with FOMO is a case of adjusting your thought processes – and that isn’t something which happens straight away. The feeling of missing out on a great opportunity can be pervasive.

Here are five top ways to deal with FOMO and become a better trader:

Accept the FOMO

The first step to overcoming FOMO is accepting it. This can provide a great deal of relief – the idea that everyone is having a better time, and is more successful, can be lonely and isolating.

Warning signs

Traders having thoughts like this might need to accept their FOMO:

“FOMO? What FOMO? I’m in full control of my trading.”

A refusal to accept FOMO means a trader won’t change their habits, staying stuck in an unfulfilling cycle of reliance on others.

How to accept FOMO

Remember that FOMO affects traders all the time. It might help to share experiences with others in a group learning environment like the IG community

Work on your trading psychology

FOMO is intrinsically linked to psychology; the emotions of trading can take over and make traders question their own decisions.

Warning signs

Thoughts like this could indicate the focus is the here and now, not the bigger picture:

“I can’t believe I missed that opportunity! Chances like that don’t come around often. I bet other traders took it... their trades will be in the money now.”

Trading based on emotions can be risky, and can lead to cyclical behaviour – entering trades, panicking, selling, feeling regret, and doing the same thing again…

This chart illustrates what can happen if traders get carried away by FOMO. It uses the Relative Strength Index as an indicator, showing when the Japanese Yen has been overbought or oversold. The second set of arrows illustrates a situation where the trader has become overconfident and is worried about missing out on another opportunity. In their excitement, greed and fear of missing out take over – the trader ignores signals to sell in the hope of getting a bigger win, and ends up making a loss.

Control your social media activity

Social media can be helpful to traders, but it can also be detrimental – when it looks like everyone else is winning trades, it’s easy to become disillusioned and demotivated.

Warning signs

You might need to consider your relationship with social media if you regularly have thoughts like this:

“I’ll just check Twitter to get some ideas… but it’s full of people winning trades. Why can’t I be more like them?!”

Using social media can knock your confidence if it feels like others know something you don’t. It can create a feeling of FOMO rather than proving constructive.

How to control your social media activity

There’s no need to cut yourself off from the world, but try to use social media in a way that’s helpful for you. Take a look at the #FOMOintrading hashtag to see if you can relate to anyone else’s experiences, and follow  our analysts to get hints, tips and ideas for trades.

Keep a trading journal

A trading journal will help you log your activity and reflect on it. It’s an excellent self-reflection tool, allowing you to spot the habits that are helpful and put a stop to those that might lead to FOMO trading.

Warning signs

You might need to make better use of your trading journal if you’re having thoughts like this:

“This feels like a good opportunity. I think I’ll go for it. The markets seem to be working in my favour.”

These thoughts suggest you need to spend some time evaluating your trading and establishing what works for you. A trading journal will help.

How to keep a trading journal

Everyone’s trading journal will be different – yours will be personal to you and based on your trading goals. Lean how to create a trading journal and use it to its full potential, putting you in a better position to trade with confidence, not fear.

Manage your risk

Managing risk carefully is an important step in moving away from FOMO – and if you are tempted into trades through the fear, good risk management will be your backup to ensure losses don’t spiral out of control.

Warning signs

Your risk management strategy will come into play if you’re having thoughts like this:

“Everyone else is trading this market, it can’t be that risky… I don’t want to miss out.”

FOMO can make a trade seem more appealing, but it doesn’t substitute a strategy. It’s important that all outcomes are considered so you can manage risk.

How to manage risk

Good risk management sets a precedent for good trading. Learn about the importance of risk management, how it can help control emotions when trading, and why it’s essential for you.