Why We Say Yes When We'd Rather Say No!!

As a traders coach when I look back on trades of my students, most of the losses are caused by fear of missing out. You may have traded for any length of time; the fear of missing out is something we've all experienced. Fear of missing out causes us to chase stocks, trade heavier than we should and maybe even trade scenarios that aren't part of our game plan.

This phenomenon often occurs after a sharp price rise. Portfolio managers are often measured on relative basis either against the indices or against a universe of their peers. If they are underinvested as a sharp rally begins, the perception of missing out on the price move and of subsequent underperformance is so great that the fear of missing the boat forces them to get in.

This form of fear also affects individual traders. A trader may be left out of a move for some reason maybe because he is waiting for lower prices or he may be clouded by some bad news. Regardless of the reason the “left out bull” suddenly feels compelled to get back into the market. The strong belief of continuation of move coupled with the toxicity of seeing the prices explode results in the feeling of being left out.

When you find yourself in this kind of a situation it will always be wise to stand aside. Remember there is always another train. What I mean here that even if you miss the current opportunity, however wonderful it may appear, patience and discipline will always reward you with another. Look for the next train.

So how do we deal with the fear of missing out? What works for me is to simply follow a trading methodology and have the discipline to stay with it. Another way to avoid the fear of missing out is to condition your mind into believing that it is more painful to lose money than it is to miss out on a trade that is not part of your game plan. This kind of thinking has been the biggest help for me and could be of help to you too. None of us wants to lose money.

The next time you get the urge to chase a stock, or enter a trade because your connect said it will make a lot of money or you felt left out, you should take a deep breath and remind yourself how hard it is to build your account. Remind yourself how dreadful you're going to feel if you were to lose on this trade which most likely will be the end result.

If you do this often enough, the fear of losing money will become greater than the fear of missing out and once that happens, you've used fear in a positive way to help your trading.