I can feel FOMO’s omnipresence in the trading world right now. We have seen some large career changing moves in Commodities & Futures as of late. Extend the lookback time a few years and the Cryptocurrency universe is surely included.
I decided to turn to my favorite trading psychologists, Brett Steenbarger,PhD. Brett has been in the trading game since the late 1970’s and his Nov 21’ speech on Trading FOMO piqued my interest. Below is a summary of what I took away from it, and some preventative ailments attributed to Brett’s psychological evidence-based outcomes.
FOMO is a P&L Killer! At its core FOMO is a fear. The problem is not that we missed the trade, it’s that our brains perceive that missed trade as a threat to our future, our success, our reputation. When humans are afraid of something, or see a threat, it produces anxiety. This fear takes blood away from the part of the brain where higher level thinking takes place and sends it to the part that impulsive thinking lives. There WILL be poor decision making under the influence of anxiety. The key to solving this issue is to take the threat out of the situation.
Solutions: Taking a break from the screen is healthy but it is not a long-term fix. Brett explains how to train in exposure therapy (His presentation explains this in greater depth.) Slow breathing and visualization are more adept at battling FOMO. If you can visualize a calming place or situation and pair it with that fear, daily practice and dedication will prevent blood flow to the impulse zone. Gradually, when FOMO comes around, you will experience feelings of safety. Combined with expanding your time of reference, understanding, and acknowledging FOMO will make those events look like potholes on a long highway.
Missing a trade is unfortunate, but will it end my career? No. Will buying at the top, and then being so irate that I add to a losing trade and forgo stop orders end my career? It might. Will I be thinking clearly on my next trade with a fresh mistake permeating my thoughts? No.
The best motivation to avoid FOMO is to develop emotional hate towards the negative consequences of it. In the fullness of time, the desire to avoid negative outcomes becomes self-reinforcing with repetition and therefore cements as an internal priority. This works across the board in other life scenarios as well.
Tapping into other motivations besides P&L is one that really hit home with me as well. Brett dives into the desire to learn and grow as a greater motivator than just P&L alone. This addition will create a dual purpose to each trade. You are diversifying your outcome! If you come away from a trade with a negative P&L, but with a positive learning experience, you are building your Learning Capital. With time under this premise, your Learning Capital will be indistinguishable from your monetary statement.
Instead of tying your value as a trader strictly to your P&L, tie your value to your consistency and risk management. The magnitude of your P&L is nothing without consistency. Risk management begets larger positions, lower drawdowns, and an overall better quality of work life.
A Day comes with myriad experiences. Create a diversified life with people and activities that fulfill you outside of trading and your trading will improve. Reminding yourself daily of this is important.
Tying all of this together is the practice of keeping a daily ABCD Journal.
A- Activating Event – What got you upset? - Missing the trade in this case. B- Beliefs about the event – Little voice in your head – Why is this upsetting to you? “Other people are getting ahead of me, I’m not as good as they are” C- Consequences from the event – How does negative thinking affect your subsequent trading? I’m so upset about missing the opportunity I go ahead and miss the next one!
Becoming proficient in ABC will allow you to recognize the triggering event in real time. You begin to identify the negative beliefs and become a pro at understanding the magnitude of the consequences. You can change the pattern of your behavior because the consequences are so front and center.
D- Disputation- You are talking back at that negative thinking. How would you talk to someone you care about who is in that situation? Mentoring a teammate that missed a big play involves constructively lifting them up and helping them learn from it with a comforting tone. You aren’t going to beat them up.
I welcome all feedback and am also here if you want to chat about a particular experience. Happy Trading!
-Paul Wankmueller, CMT Blue Line Futures Director of Content & Education
Eliminated: impulse entry, revenge trading, extended stop loss, follow the signal, over-leverage, under-leverage, bias to one side of the market, trade news, and FOMO. Current skill: only trade high probability setup, let the trade run to you TP/SL, risk management. To be achieved in the future: risk to reward 1:2 and 1:5. The final piece of the puzzle.
StargateMax
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@aimanaimann9, how about R:R starting from 1:10 and up? I'm not joking. People in my coaching team do 1:100 and up every now and then. 1:10 is the usual intraday stuff.
aimanaimann9
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@StargateMax, for me, all strategies either 1:2 or 1:100, all of them have pros and cons. I think we all can make decisions based on our preferred choice. From my view, if we choose to have bigger reward means we have to accept bigger losing streak and vice versa. I've analysed more than 20 FTMO succesful trader, majority of them have 1:3 RR.
fschk
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@StargateMax, I would guess that this is SMC stuff where you enter position on 1m or seconds time frame.
StargateMax
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@fschiko, indeed. Maybe it's not for everyone, I'm not saying that one is good and the other is bad. It just depends on your personality, what suits you better. I couldn't trade retail style with SRT, break/retest, indicators, etc., I want it to be like 1+1=2, not 1+1=3 or 5 or 1, etc. SMC requires fewer trades altogether. Just a couple of winning intraday trades per week. Also, you can lose 7-8 times and win once, lose 7-8 times and win once, and still make nice profits. Of course, losing that much is ridiculous. But the point is, losing a couple of trades is psychologically a breeze if you know that your winners go above 1:10. I never felt that with 1:2-1:3 trades, every loss was hard to take. Since the majority finds it easier to trade SRT/breakouts and indicators there are more success stories with that.