Nowadays, the abbreviation FOMO is increasingly seen in social media, trader chats, and investor discussions. This term emerged with the rise of virtual communities that unite large groups of people constantly exchanging opinions. Among them, some believe they are performing worse than others, missing out on opportunities that others are seizing. This is FOMO – the Fear of Missing Out. Can it actually harm you, and how can you deal with this syndrome?
What is FOMO?
Fear of Missing Out (FOMO) is a psychological state where a person experiences a real fear of missing out on a profitable opportunity. It typically arises when comparing one’s results to the achievements of others, often more successful individuals. However, it is often simply the result of doubting one’s abilities.
The term was first studied in 2013, but it had already been widely exploited by marketers, influencing social media audiences and prominently appearing among traders and investors.
In trading, FOMO manifests as the desire to make a deal not because the strategy dictates it or the trading system provides signals, but because “everyone else is buying.” A great example of this phenomenon is the market’s reaction to the rise of Bitcoin or Tesla stocks. Many traders regret not buying a few thousand BTC when they were worth just a few cents or a couple of Tesla shares right after the IPO.
This leads to the fear of missing the next big opportunity and feeling inferior to other market participants. The feeling is often fueled by victory posts in chats, where peers showcase their achievements or talk about them, often without proof. At this point, FOMO has already taken its next victim.
Is FOMO Dangerous for Traders?
Traders and investors driven by FOMO are genuinely motivated by the fear of being worse off than everyone else, constantly fearing future regrets. As a result, their trading decisions are influenced not by analysis, but by messages in chats and Telegram channels like “Buy now!” or “To the Moon!”
Another manifestation of FOMO is re-entering a trade after closing it for profit, thinking they missed out on a bigger gain. This behavior shows the psychological impact of FOMO on traders, especially those with less experience in the market.
It’s worth noting that FOMO is not classified as a mental illness in the ICD-10 or DSM-5 and is not considered a psychological disorder. Therefore, it appears in perfectly healthy individuals who are capable of overcoming it on their own.
Who Isn’t Affected by FOMO?
Experienced investors claim that FOMO is incompatible with a disciplined trader:
- Unlike those with FOMO, disciplined traders strictly follow their trading strategies and systems. They don’t make trades based on market hype but only after proper analysis.
- A disciplined trader is calm during trades, monitoring positions, and evaluating the situation. In contrast, someone with FOMO experiences constant panic during trades, unable to understand the reasons for entering or exiting the market.
Becoming a disciplined trader or investor is the key to defeating FOMO.
How to Overcome FOMO
Transforming from a FOMO-driven trader to a disciplined market participant involves several simple steps:
- Always have a trading plan and stick to it. The plan defines entry and exit points and is dictated solely by the trading system. This helps to ignore chat signals and avoid impulsive decisions.
- Create a checklist outlining the mandatory steps for each trade. Don’t open or close trades until all items on the checklist are completed.
- Keep a trading journal to record every action. Review it at the end of each trading period to assess the impact of impulsive decisions and compare them with results from following your trading system.
- Prepare for each trading session by conducting fundamental analysis and technical chart evaluations. Understanding the market’s basic processes helps to resist FOMO-induced panic.
- Always use stop-loss orders as an extra safeguard in case FOMO takes over. Even if market sentiment pulls the trader in, the stop-loss will limit the losses.
In conclusion, the Fear of Missing Out can significantly affect trading outcomes. However, traders with knowledge and experience understand that it’s impossible to capture 100% of every market move. Trading within a structured system and maintaining strict discipline will minimize the chances for FOMO to develop or make it easier to overcome.