FOMO - Analysis from a Trading Psychologist FOMO.
Fear of Missing Out. We have all heard this phrase. It could pertain to that VERY LAST concert of your favorite band in the middle of the week and coming late to work the next day. Scrolling through Instagram and making a split-second purchase that never works out. We get the idea.
I can feel FOMO’s omnipresence in the trading world right now. We have seen some large career changing moves in commodities as of late. Extend the lookback time a few years and we could probably open a FOMO Crypto clinic, complete with padded rooms. Why didn’t I catch that move in Euro Power? I can’t just sit here and watch my neighbor get rich; I missed the only opportunity to make money!
Well, Crude Oil, Gold and Wheat all taught traders suffering from FOMO a healthy lesson these past few weeks. Or are they doomed to repeat it again? Traders rarely want to admit weakness, but it’s essential to becoming profitable. Hi. My name is Paul Wankmueller, and sometimes I suffer from FOMO.
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 PnL 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 a bummer, but is that going to 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? Nope. 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 PnL 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 PnL 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 PnL, but with a positive learning experience, you are building your LC (Learning Capital). With time under this premise, your LC will be indistinguishable from your monetary statement.
Instead of tying your value as a trader strictly to your PnL, tie your value to your consistency and risk management. The magnitude of your PnL 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. Maybe you woke up next to the love of your life, saw your kids off to school, got an extra good boy wag of the tail from the pup, the list goes on. 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
