How to Deal with FOMO
FOMO
Stands for “Fear of Missing Out”. We’ve all been a victim to it. It’s all made us do some really stupid things. Sometimes we’re lucky and we act on FOMO and we don’t regret the results later. But other times, we look back and wonder, “how did I let FOMO get the best of me again?”
I believe it should be self-evident that FOMO is the worst driver of decision-making. It’s practically in the name itself. Who wants to make long-term rational decisions based on fear?
Now, fear itself is not necessarily bad. If there is a bear chasing you, then it’s good to run away. If the milk smells really bad, it’s good to throw it out. If someone is behaving bizarrely, it’s good to be cautious. Fear can help us a lot to survive.
But in FOMO, what exactly are we afraid of? Missing Out.
Missing Out on what?
Beats me. Something special and fancy and unique and once in a lifetime that will never ever come back and your life is permanently ruined forever for Missing Out.
Yeah. Sounds ridiculous right? Because that’s what FOMO is. It’s ridiculous.
However, let’s go deeper.
Going Deeper
At the root of FOMO is the scarcity mindset. You’re afraid of an opportunity that will never come again. It is rare and if you miss it, you miss out.
Let’s say you’re at a restaurant. They’re offering you a Coca-Cola. You think about it. It would be nice to have a drink. But you could pick Sprite instead, or lemonade.
As you’re pondering your beverage options, do you have FOMO? I imagine you don’t. Why?
Coca-Cola or Sprite or any popular beverage is a commodity. So you can always get it later. You can’t fear that you’ll miss out because it’s available later.
This all changes if there’s a special on the menu. Suddenly, you have to make a decision. Will the special ever come back? Is it a one time thing? How often are you at the restaurant? How often do you hear that type of special?
Think about all the times you had FOMO. You may find that they all presented themselves as some unique and special opportunity. It’s scarce.
FOMO is about scarcity.
FOMO with Trading
Trading is interesting. On the one hand, things happen all the time. Prices go up and down. Make money on either direction. On the other hand, major 10-100x moves come once in a lifetime. How many times will we experience a Bitcoin in our lifetimes?
So if FOMO is about scarcity, then FOMO with trading must be about scarcity in trading. More specifically, we’re talking about scarcity in opportunity.
Just like you don’t have much FOMO when it comes to picking out a soda in a restaurant, you’re not likely to have FOMO if you believe that the opportunity that passed to make profit will come again. However, it’s more than just “coming again”. It’s about how long it will take for that opportunity to “come again.”
Trading is like fishing or hunting. You don’t know what will cross your path. If you’re lucky, you’ll get an opportunity for a big catch or a big score. However, you need the requisite skill to be able to take advantage of the opportunity.
Even if we have all the skill in the world, we still need these opportunities to come to us. If they don’t come, all the skill in the world won’t help us get fed…unless this is the wrong way to think about things…
Overcoming FOMO
An experienced hunter and/or fisherman is patient. They have seen many things in their lifetime. They know where to exert their energy. They know that there are days where things are plentiful and days when things are scarce. But they always stay the same. They are able to be patient.
It’s similar for experienced traders. They know markets go up and down. They’ll make money, but it’s up to the markets to determine HOW MUCH money they make. That part is out of their control. It requires understanding of the current economic environment, the level of uncertainty, and sometimes, even a bit of luck.
If you are inexperienced, you are unlikely to have seen enough trading opportunities to realize these opportunities are quite plentiful. Deep down inside, you likely doubt yourself. And it’s not so much the “opportunity” you’re afraid may not come, but rather, the “easy catch.”
That’s what FOMO is about. It’s about the easy catch, the easy money that won’t return. That tiny bit of luck where if you strike it big, you can actually fulfill all of your financial dreams. Those types of opportunities may never come. They’re like the lottery.
But when they come. When they actually finally come, if you miss it, then it’s on you, it’s your fault and no one else’s. Your lack of skill is the reason why you missed it. And therefore, you deserve to lose. You deserve nothing. You deserve…you deserve…you deserve…
This is the true narrative of the pre- and post-FOMO experience. Do you see how psychologically debilitating it is? Do you see how much you need to get rid of it if you want to become a consistently profitable trader?
Notice one major characteristic about the FOMO experience: It has nothing to do with the market – the thing you are either buying or selling. Nothing, nada. It’s an entirely self-centered view of your money. As a result, it is completely divorced from reality.
Replacing FOMO with a Process
I talk about this a lot and there’s a good reason. The foundation of a consistently profitable trader is a strong Process. (Check out the Introduction to Professional Level Trading (IPLT) and Professional Trading Masterclass (PTM) if you’re looking for a strong process that actual professional traders use).
A strong trading process is the source of your consistent profitability. It works in any market and is ready for any outcome. It is informed yet flexible. It takes calculated risk to develop outsized returns. With a strong trading process, FOMO doesn’t exist. FOMO is about missing out on a single event. A process is a technique that you use to get a desired outcome. For trading, that outcome is consistent profitability.
Going back to the restaurant example, you may not have FOMO for Coca-cola. But you might have FOMO for the special of the day. However, if you’re the chef, if you create delicious meals every day for your customers, do you have FOMO over the day’s special? Of course not!
Your cooking is the process you use for your business. You CREATE the special. Sure, the ingredients may come and go. But as a top chef, you know how to make delicious dishes from any assortment of ingredients. Your cooking techniques are strong to always bring in customers. No single ingredient is so necessary that it would destroy your business.
Is trading any different?
FOMO and Risk Analysis
FOMO is really about risk analysis (or lack of risk analysis).
When you get FOMO, your fear is flipped on its head. It’s fear of “missing out” not fear of losing money.
Let that sink in for a second…
When you get FOMO…You fear “missing out”
However…
Isn’t there something wrong with that as a trader? Let’s say the stock continues to go up but you didn’t buy it. You didn’t lose money, but you’re afraid that you missed the opportunity. But you didn’t lose money.
Of all the things to be emotionally invested in, do you think you really have the emotional bandwidth to deal with a fear that has no bearing on your portfolio? You don’t have time for that! You need to worry about the ACTUAL losses in your portfolio or ensuring your ACTUAL gains are protected. (Not to be mistaken with realized vs unrealized losses and gains).
FOMO is about emotional energy in all the wrong places. It puts negative emotional energy in an event that does not negatively affect you and causes you to act. When you act, you feel emotionally better until things go against you. Then the negative emotional energy is back again. What a ridiculous cycle.
Take some time to reflect on an action driven by FOMO. It’s all about negating negative emotional energy that isn’t affecting your portfolio. The action takes no account of the risks of the trade. It only takes into account the possible opportunity cost of the trade and makes no assessment of the risk.
When you take on a trade without thinking of the risk, what is the likelihood that the risk you took on what MORE than you should have taken? It should be high because…you didn’t consider the risk.
If you want to be consistently profitable and you took on a trade without understanding the risks…shame on you…
But you’re better than that, right? And if you’ve been victim to FOMO, all portfolio sins can be forgiven. You can always make more money later. There will always be opportunity to make money.
Getting Rid of FOMO
That’s FOMO in a nutshell. But let’s get really practical. Here are some steps you should take if you personally have trouble with FOMO:
Get a piece of paper and write down all the times you’ve had FOMO in the past. Try to be specific with dates, the trades, and the results of the trade. It’s okay if you don’t have all this information.
Assess what was the net result. Was it good? Was it bad?
Continue trading and wait for the next time you get FOMO.
Take a moment to write down the date, the time, the circumstances. Also, write down your thoughts, emotions, and how you are physically feeling. This part is really important.
Take a step back and assess the risks of the trade you want to make. How much money can you lose? How much money can you make? If the markets are moving too rapidly, don’t get in. Stay back and wait until things settle down. How much money can you lose? How much money can you make? Is it worth it?
Collect all of these experiences to find a pattern of your thoughts and behavior.
Develop rules for yourself to negate the worst of your thoughts and behavior.
I know, it’s easier said than done. But aside from hiring me directly, this is the best I can provide at the moment. I will emphasize, however, that the above only works if you have a strong trading process. Check out the Introduction to Professional Level Trading (IPLT) and Professional Trading Masterclass (PTM) if you’re looking for a strong trading process that professional traders use.
Until then, Happy Trading!
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