The fear of missing out, or FOMO, is one of the most crippling feelings any trader can have.
It can cause even the most seasoned trader to lose their cool and make an emotional decision.
The reason it’s so dangerous is that it taps into two of the most powerful human emotions: fear and greed.
In my experience, the worst FOMO is brought on by a feeling that everyone else is enjoying a great run of winning trades… while you’re sitting on the sidelines.
Think of Bitcoin’s nearly 2,000% melt-up in 2017… or the record-breaking advances in the stock market since March.
If you haven’t participated in this current rally, you might be a victim of FOMO right now.
The good news is that I’ve found a cure for FOMO. Let me explain…
The Only Free Lunch You’ll Get From the Markets
When I first started trading, I hated the feeling of missing out on big trending moves. It always led to me making a dumb, emotional decision.
I’d take far too large a position way too late in the game to try and make up for all the movement I missed out on. It never worked out in my favor.
I realized that if I wanted to really make it as a trader, I had to kick the FOMO habit.
My FOMO cure is very straightforward. I’ll tell you what it is in a moment. But first, you have to understand this…
As traders, we are nimble and flexible. We ride the ebbs and flows in the waves of the market. This means there’s always another opportunity right around the corner.
On the other hand, this also means we won’t catch every big wave.
There are two important lessons to take away from that. The first lesson is about diversification.
Andy likes to say diversification is the only free lunch you’ll ever get from the markets.
If you trade multiple markets such as stocks, currencies, and commodities, you’re diversifying. If you trade multiple industry sectors, you’re diversifying to a different extent. And if you trade the forex market, there are a great many currency pairs to keep an eye on.
The second important lesson is to take advantage of what it truly means to be a trader. Here’s what I mean…
The House Always Wins
As I said earlier, as traders we can be incredibly flexible. We have control over our risk, how we allocate our capital, and the different time horizons in which we want to participate in the markets.
Many people think that trading is just like gambling. But it’s no coincidence that the traders who gamble in the markets are the ones who end up losing their shirts.
The successful traders don’t take on the role of a gambler… They take on the role of the casino or the house. And the house always wins.
To trade like a casino means having a statistically proven edge in the market… and then exploiting that edge over and over again.
The casino isn’t necessarily worried about that one player that hits it big at the roulette table. It’ll make it all back, and much more, from all the other suckers who slowly (or very quickly) give their money away to the casino.
And that hotshot who landed a lucky spin? More often than not, he won’t stop there. Convinced he’s unstoppable, he’ll make another big bet… only to give back most or all of his winnings.
How to Beat the FOMO
I’ve worked with countless traders who’ll go on a winning streak, then take an outsized position and end up breaking even or losing money.
They’ll repeat this process countless times until they realize something has to change… Or they’ll just throw in the towel and quit.
The traders I just described are not exploiting an edge – at least not consistently.
To trade with an edge means having a proven methodology, then using that same methodology with consistency over time.
Successful traders will hit a few home runs, for sure. But far more often they’re hitting singles and doubles. As a result, they enjoy a smoothly rising curve of profits.
So here’s the simple key to avoiding the FOMO: Don’t lose sight of the bigger picture.
I used to worry that the move I just missed was the move. Of course, that was nonsense. The market is infinite and unlimited in the opportunities it will present.
By changing my perspective from being worried about missing out… to knowing that the next great trade will appear for me at any moment… I was able to let go of my FOMO almost entirely.
The temptation to hop on board a train that has long left the station will always be there.
But I also know I can get on board that same train at the next stop… and if I miss it, there’ll be another train to take me to a different destination.
Editor, Money Trends
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