«FOMO» syndrome - what it is and how to deal with it
- VFX Blog
- For beginners
The emotional state of a stock trader is always the most important factor influencing financial results. One of the most common and most insidious psychological problems in the process of learns a binary options trading is FOMO syndrome. Many people suffer huge losses due to the consequences of its manifestation. What is this problem and how to act when it appears, read our article.
What does this mean?
FOMO in trading can appear for a trader, especially a beginner, as often as an opportunity for profit. The abbreviation stands for "Fear Of Missing Out" - "fear of missing an important event" or "lost profit syndrome." In the materials on exchange psychology and binary trading, the definition appeared recently, although in the professional environment it has been known since the emergence of trading as the main activity.
Just as technical analysis has its patterns when forming a trend, certain behavioral patterns can be traced in human psychology. The better a person understands their character and motives, the more tools they have to work without emotions, which gives them additional profit.
Let's look at the main phases of this psychological «trap»:
From the picture, you can immediately see that the main prerequisite for the appearance of FOMO is incorrect analysis and selection of the wrong entry point. This is common for beginners.
The problem of FOMO is psychological, manifests itself in a personal attitude towards oneself. For example, after an unsuccessfully closed position, a trader analyzes the chart and after the fact sees a missed opportunity. Another manifestation of the problem is the feeling that others are more successful. To appear successful, many avoid disclosing their losses. And appear more talented to others. Beginners will strive to trade as profitably that inexperience will lead to mistakes in the form of a loss on the account.
Emotional FOMO can be expressed in:
No emotion will lead to long-term profit. It is important to be as limited as possible in these manifestations. Traders under the influence of FOMO show similar behaviors, psychologists highlight the following main statements:
• "Everyone does it, it won't be bad". Blindly following the crowd or binary option robot can lead to a significant loss on the account. You need painstaking analysis and serious reasons for opening an option.
• "I can make so much money!". Trading with a groundless expectation of profit rarely leads to profit. No one knows when even the strongest trend situation will end. Therefore, you need to know the best time to enter and compare it with the current situation and live trading signals. Be sure to have the necessary protective strategies to prevent losses.
• "I think I'll try this signal or strategy". Such groundless indecision cannot be the reason for opening an order.
• "They must know something I don't". Maybe, but these insights can't last forever. If a movement has occurred for no particular reason, it means that soon it will either be confirmed in the news or economic indicators, or there is an adjustment to the closing of volume positions of market makers.
• "I needed to know this was going to happen". Self-flagellation after receiving a loss. It speaks about the absence of a working binary option strategy in terms of testing on historical data.
• "I'm afraid to miss a big opportunity". This is a direct consequence of the lack of a vision of the market Experienced player with clear rules of action for open options.
• "The Japanese yen (pound, euro, dollar, Bitcoin, Litecoin, etc.) is a pretty safe option, I will invest in it". The statement itself is true for every asset, but in no way indicates the best moment to open.
The market as the reason for FOMO
All psychological problems appear after external "activation", and FOMO is no exception. In our case, the “signal” can be the following market situations:
• «High volatility». The trader may have high hopes for it, but the situation on the stock exchange can change quickly, not allowing you to get enough profit due to excessive emotions.
• «Lucky streaks». Several big profitable trades in a row. Sanity is disabled; the goal of binary trading is «another option» without a strong signal. This is always followed by a series of losses; there is the appearance of FOMO that does not allow you to calmly analyze the market
• «Only losses». The opposite situation: if a series of profitable trades is followed by a deceptive euphoria, then a series of options closed at a loss lower confidence in oneself and makes one doubt the strategy signals. Again FOMO.
• «Rumors». Information about the huge profits of market participants again lowers self-esteem. This will be manifested in the uncertainty that has been discussed before.
• «Excessive trust in social networks». Most often, only profitable transactions are displayed, and they prefer to keep silent about losses. Faith in such "mega players" can develop a lack of confidence in their own abilities. It is important to remember that everyone has a 50% probability of making a profit when opening. The only difference is how risk is managed.
• Sometimes FOMO of small and medium binary options traders can cause strong trends and reversals; we are always looking for an informational (fundamental) reason.
Disciplined Trader vs. Fomo Player
Before moving on to the recommendations on how to "cure" the syndrome, let's dwell on the discipline. Perhaps no further advice is needed after that. So the difference between a disciplined and a FOMO trader:
• The first, in addition to its strategy or binary option robot, is always skeptical of other people's opinions. The second makes most of the decisions on hearsay and fundamental news statistics, which can change to negative at any time if the macroeconomic situation changes in the world or an individual country.
• A trader with discipline chooses a comfortable money management system and always adheres to it, even if you need to take a break from trading. The reverse situation is affected by FOBO: the volume of the transaction and the expiration date of the option are constantly changing. As a result, we get only losses.
• A trader with discipline understands that new knowledge and methods of adjusting his trading binary option should be sought in unprofitable trades. The FOBO trader tries to forget them right away and constantly remind himself of only profit, although this can be just luck. There may be a second situation: losses lead to constant stress, which makes it difficult to calmly find a mistake. If that's your option, read the next section.
How to avoid the syndrome
Everyone should understand that no one is immune to emotions in trading. Of course, for those who are just starting to learn binary options trading, this causes more problems. Professionals recommend following these recommendations:
• Always be prepared to open the next option. Whatever emotional background the situation with FOMO leaves, the market is always ready to offer excellent opportunities. The main thing is to control emotions!
• Everyone is equal in the market. Regardless of experience, the amount of the trading account and individual characteristics, each person can get into situations with the manifestation of FOMO. If you approach this as a routine matter, soon the problem will no longer have a big impact on the results.
• Accurate adherence to the trading strategy helps to reduce the influence of psychological factors. Therefore, in binary options trading, like in any financial sphere, it is important to have, and most importantly, to always adhere to a trading plan. It must have strict rules for opening, maintaining, money management and closing options.
• One of the main postulates of a well — built trading strategy is to invest in each transaction the amount of capital that the loss of which will not cause strong negative emotions, and therefore will not cause FOMO syndrome.
Let`s summarize. Overcoming the FOMO problem cannot happen; it takes a certain amount of time. And if in the future you know what techniques should be used to prevent the negative consequences of such emotions, everyone can bring trading binary options to a profitable level.