FOMO (Fear of Missing Out) or FOMO Trading is a problem that has been known to affect many stock investors over the years. According to experts, it is the cousin of FOBI (fear of being invested) which every investor in the stock market (both experienced and newbies) must have experienced in the past. While some may be aware, others may not. Whatever the case of may be, the fear of missing out is one feeling that every stock investor needs to have an in-depth knowledge and understanding about.
We will discuss everything about FOMO in detail for better understanding. The aim of this post is to help you with overcoming your Fear of Missing Out in the stock market in the most effective manner. Some of the questions we will try to answer are:
- What is FOMO trading?
- Major causes of FOMO trading.
- Tips for overcoming FOMO trading
What is FOMO trading?
FOMO is an acronym for fear of missing out in the stock market. It is that feeling an investor gets when a particular stock seems to be performing very well all of a sudden. This is experienced when you haven’t invested in the stock and it seems to be increasing in value. Just as stated above, it is one of the most common problems that every stock trader experiences once in a while. It doesn’t really matter your level of experience as you can be affected. It should be noted that newbies and inexperienced traders are always the most affected victims.
This is the era when creating the wrong impression about stock is quite easy. For instance, there are social media platforms which are being used in peddling false news about the stock market. People can start making false reports about stocks of companies that are worth investing in due to how they are performing in the market.
As an investor, FOMO is likely to set in when you haven’t invested in such stocks. This is because you would start fancying your chances of cashing in. One of the problems with such feelings is that it makes stock investors become less patient. In other words, you wouldn’t want to analyze the market objectively before jumping in. This is due to the high expectations that has been created by members of the public.
There is something that seems to drive FOMO feelings. These are your emotions. As a trader, once you start investing in stock based on emotions, it can be said that you are suffering from FOMO (Fear of Missing Out). Some of the emotional feelings which can trigger this problem are anxiety, impatience, excitement, fear, jealousy and greed.
A very recent example for FOMO trading are the so called “meme stocks” – GME, AMC, NOK, BB. Their price suddenly went up more than 100%. People were afraid of missing the gains and started buying in at the peak of each stock. Right now most of them are left bag holding because the stocks went back to normal price.
What causes FOMO trading?
It is true that FOMO is an internal feeling. However, there are times when it can be triggered by some external factors. Some of these variables will be explained below:
1. News & rumours
Just as mentioned above, this is the era when false news can be easily peddled about the stock market. There are investors who trade stocks based on news and rumours. Although there is nothing wrong about this, it can cause more harm than good. Your investment decisions in the stock market shouldn’t be based on news which haven’t been verified.
Instead, ensure you are investing based on careful analyses about the market. This is the best way to be on a safer side. There are manipulators in the stock market who deliberately spread rumors in order to lure investors like you. Always remember the popular saying “buy the rumor, sell the news”.
2. Volatile market
The stock market is highly volatile. It is the reason why stocks that are selling very low can command high prices within a matter of days or weeks. Potential investors in this case would always want to take advantage of this situation. Of course, the primary goal is to make profits. Traders usually like the idea of exploring every opportunity to make profits.
3. Losing repeatedly
This is another factor that can lead to FOMO. Have you ever been on a losing streak in the past? In such a case, you will find out that your decisions to invest in the stock of companies are based on losses you have experienced in the past instead of clear facts. This can only bring about repeated losses. When you enter a trade based on anxiety and fear, there is always a very good chance of losing out. The reason for this is quite simple. This is the fact that your decisions are sentimental and biased.
4. Winning streaks
This is the opposite of the above factor (losing repeatedly). Of course, if losing repeatedly can bring about FOMO, there is every chance that it can also be caused by winning streaks. Have you ever made huge profits from a stock before? Doing it just once won’t bring about Fear of Missing Out. However, when you make profits consistently from a group of investments, there is always that feeling.
This happens because you would want to take advantage of every opportunity that presents itself in the stock market. In such a case, the analysis becomes weak and your decisions are based on past glory instead of market data. You are very confident that investing in such stocks will bring about massive profits.
Having said the above, it can be said that FOMO is a common problem in the stock market which can be triggered by various factors. As an investor, you should know that this is very dangerous and has some implications. For instance, it can make you guilty of making irrational investment decisions which will bring about huge losses.
Tips for overcoming FOMO trading
Are you struggling with FOMO as a stock trader? It is true that this problem can be experienced by everyone including seasoned stock investors. However, it will do you a lot of good to deal with it. There is no need racking your brains about how such can be done though. This section will be revealing some tips that you can use to overcome FOMO trading.
1. Having a trading plan
When it comes to investors who usually experience fear of missing out, traders without any trading plan are the most affected. There are traders who believe that the best strategy is jumping onto the next “big thing” in the stock market. Apart from being easily affected by FOMO, this is only a recipe for failure and struggle.
With a trading plan that you can strictly follow, your investment decisions will hardly be influenced by news and rumors which are not true. Another benefit of this is that it can help to ensure you are set up for long term success.
Every stock investor may be prone or vulnerable to suffering from FOMO. However, successful understanding of how it can be brought under control via creating a plan and sticking to it regardless of rumours about stocks that seem to be doing well will help.
2. Accepting your present stance
There is something about successful stock investors. This is the fact that they understand it is not possible to invest in every stock. Once you understand this strategy, there will not be any need to think about a stock that is doing well which you haven’t invested in. You can’t invest in any stock which comes your way for the purpose of making profits.
This is one strategy that will bring about biased investment decisions. Of course, it is normal to find winning stocks once in a while. However, this shouldn’t be on a regular basis. When it becomes regular, you are only giving room for FOMO to be triggered.
3. Be patient
As a stock investor, achieving success will not happen overnight. For instance, if you purchase the stock of a company today and discover that after 12months, it has increased by around 20%-30%, such a very good investment. This means that if you purchase a stock that is valued at $10 in the month of January which will later become $13 in December, such isn’t a bad investment at all. You have to be patient as success doesn’t happen overnight. Even if you are a short term trader, being patient can help to ensure you are not affected by FOMO.
4. Invest small
This is another powerful way that can help you overcome FOMO. Most investors are guilty of thinking about how to jump into that “big trade” which will change their lives for good. Whenever you are trading too big, there is every chance that you will begin to suffer from emotional stress. This can bring about bad decisions that will lead to loss. Although “invest small” has a different meaning to everyone, a golden rule is to not invest more than you are willing to lose.
Having seen the above, it can be said that FOMO trading is one problem which every stock investor has to deal with. The good part is that there are tips above to help you overcome this problem without having to risk your investment.