We've all seen it happen. A market starts moving higher, and before long, it seems like everyone is talking about it. The headlines are filled with stories about the big move, traders on social media are sharing their profits, and prices just keep climbing. Meanwhile, you're sitting on the sidelines watching it all happen, wondering why you didn't get involved a few days earlier.
Before long, you may find yourself thinking about how much money you could have made if you had entered the market when you first noticed the opportunity. Those thoughts can quickly turn into a strong urge to jump into the market before prices move even further without you.
That feeling is called FOMO, or the fear of missing out, and after more than 36 years of being involved with the markets, I can tell you that it's one of the most common traps traders fall into. What makes FOMO particularly dangerous is that it doesn't necessarily feel like you're making a bad decision. In fact, it can feel like you're taking advantage of a great opportunity, even though you may actually be increasing your risk by chasing a market that's already made a large move.
Why FOMO Is Such a Problem for Traders
Futures markets can move quickly, and there are times when a market will rally or sell off for several days without much of a pause. When that happens, it's easy to feel like you're being left behind, especially if you've been watching the market and had already identified a possible trading opportunity.
Social media can make matters even worse because we often see traders sharing screenshots of their winning trades, yet we rarely see them posting their losses. As a result, it's easy to believe that everyone else is making money while we're missing out on all the action.
One thing I've learned over the years is that the market doesn't care whether I'm involved in a trade or not. Prices move based on buying and selling pressure, and those movements have nothing to do with whether I happened to enter a position. The problem begins when we allow the fear of missing out to influence decisions that should be based on our trading plan.
The Hidden Cost of Chasing a Market
Let's say you've been watching a futures market that's been moving higher for several days. Earlier in the week, you noticed a possible buy setup, but for one reason or another, you didn't take the trade. Now the market is trading well above the price where you originally wanted to enter, and you're beginning to feel like you've missed a great opportunity.
Instead of waiting for another setup, you decide to jump into the market because you're afraid the rally will continue without you. Although the decision may seem reasonable at the time, several problems can develop when you enter a trade simply because you don't want to miss any more of the move.
First, you're entering at a much higher price than you originally planned, which may reduce your potential reward while increasing your risk. In addition, the nearest logical support level may now be quite a distance below the current price, making it difficult to place a protective stop without taking on more risk than you would normally allow.
Another problem is that some traders increase their position size when chasing a market because they're trying to make up for the profits they believe they've already missed. Unfortunately, this can make the situation even worse if the market suddenly changes direction.
Now consider what happens when the market begins to pull back. The longer-term trend may still be higher, and the pullback itself may be perfectly normal. However, because you entered the trade at a much higher price, that same pullback could be enough to trigger your protective stop and produce a loss.
I've seen this happen countless times over the years, and it's especially frustrating because the trader may have been correct about the overall direction of the market but still lost money because of poor timing.
Remember, missing a trade doesn't cost you money, but chasing a trade certainly can.
Learning to Recognize FOMO
One of the best ways to deal with FOMO is to recognize the warning signs before placing a trade. While we can't always control the emotions that come with trading, we can learn to recognize when those emotions may be affecting our decisions.
For example, if you find yourself thinking more about the profits you could have made than the actual trading setup in front of you, that may be a sign that FOMO is beginning to influence your thinking. The same is true if you're considering entering a position even though your normal entry signal hasn't appeared, or if you're having trouble finding a reasonable place for your protective stop.
Another warning sign is feeling rushed because you believe the market is about to take off without you. When that happens, it's easy to convince yourself that you need to act immediately, even though the trade may no longer offer an attractive balance between potential reward and risk.
If you recognize these feelings, there's nothing wrong with stepping away from your charts for a few minutes. Sometimes taking a short break and returning with a clear head can help you look at the situation more objectively.
A Trading Plan Can Help Keep Emotions in Check
In my opinion, one of the best ways to avoid emotional trading decisions is to have a plan in place before entering the market. That plan doesn't need to be complicated, but it should clearly identify where you intend to enter a trade, where you'll place your protective stop, and what your potential profit target might be.
Just as important, you should know how much money you're willing to risk if the trade doesn't work out as expected. These decisions are much easier to make when you're calm and looking at the charts without feeling pressured to act immediately.
This is one reason I spend so much time looking for specific chart patterns and trading setups. Whether I'm watching a 1-2-3 top or bottom formation, a MET setup, or a Fish Hook pattern, I want the market to provide a technical reason for considering a trade.
I'm not interested in entering a position simply because prices have been moving higher or lower for several days. Instead, I want to identify a setup that gives me a reasonable entry point, along with a logical place to manage my risk.
There's an important difference between a market that's trending and a market that's offering a good trading opportunity. A market can be in a strong uptrend without providing an attractive place to buy, just as a market can be falling sharply without offering a good place to sell short.
There's Always Another Opportunity
One of the lessons I've learned over the years is that you don't have to participate in every market move to become a successful trader. In fact, trying to catch every move can create more problems than it solves, especially when it leads to taking trades that don't fit your normal approach.
Think about the number of futures markets available to trade. We have grains, energies, metals, currencies, stock indexes, interest rates, and many others. With so many markets to follow, there will always be another potential setup to consider.
Of course, that doesn't mean every opportunity will turn into a profitable trade, but it does mean we don't have to force ourselves into a position simply because we missed an earlier move.
Trading requires patience, and sometimes the best decision is to remain on the sidelines until the market gives us a setup that fits our plan.
Final Thoughts
If there's one thing I'd like you to take away from this discussion, it's that patience is just as important as knowing how to read a chart. You can have excellent trading tools, a solid understanding of technical analysis, and years of experience, but if you allow emotions to control your decisions, you can still find yourself making costly mistakes.
FOMO is especially dangerous because it encourages us to act when we should probably be waiting. Rather than focusing on the opportunity in front of us, we begin thinking about the profits we might have missed, which can lead us to ignore the rules we created to help manage our trading.
The next time you find yourself watching a market race higher or lower without you, ask yourself whether you're considering the trade because you have a valid technical setup or simply because you're afraid of missing out.
After being involved in the markets for more than 36 years, I've learned that missing opportunities is simply part of trading. What matters most isn't how many moves we participate in, but whether the trades we take fit our plan and offer a reasonable balance between potential reward and risk.
Our job isn't to catch every move. It's to identify good opportunities, manage our risk, and protect our trading capital so we're prepared when the next one comes along.
Good trading!
Jim Prince
CommodityTrends.com
*Educational disclaimer: This post is for educational purposes only and is not investment advice or a recommendation to buy or sell any futures, options, or other security. Trading futures and options involves substantial risk of loss and is not suitable for everyone. Past performance is not indicative of future results. Always do your own research and consider your own financial situation and risk tolerance.
