Friday, March 02, 2007

Fear Of Missing Out

When I look back at my short term trades, most of the losses were caused by fear of missing out. If you've traded for any length of time, the fear of missing out is something we've all experienced. It's almost as if we would rather lose money than to see that trade work without us being involved. 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.

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. I've noticed when I am one step ahead of the market in terms of what I will do if such and such were to happen, I usually make money because I am in an anticipatory mode of thinking and my timing tends to be very good. However, there are times I get caught up in the excitement of a rapidly moving stock and I think to myself that I must get involved, so I chase it and of course we all know how that turns out. So following a trading methodology is a very good way to avoid the fear of missing out.

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. None of us wants to lose money. We all know how painful it is to watch our account diminish in value especially when we are losing money because we fear that we will miss out. The next time you get the urge to chase a stock, or enter a trade because the guy on tv said it will make a lot of money, you should take a deep breath and remind yourself how hard you've worked building your account. Remind yourself how awful 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.


Eric said...

great advise kev, i fell into that trap once this week and boy did it hurt.

Kevin said...

Sorry to hear that Eric...I'm dying to chase into the Japanese Yen long but I'm trying to remain disciplined and do nothing. Too much risk right here. For me the fear of losing money is greater than the fear of missing out..So I'll let this trade go and just watch it.

Randal said...

Kevin, ive been there too. By the way, i read your blog pretty regular, and im linking to you from my blog

Chasing stocks has probably been the culprit behind most of my loses. Here are a few "golden rules" I try to follow.

* - Never short a dull market.
* - Trends take time to change direction
* - If your not following your rules, your gambling
* - Set your rules and stick to them
* - As long as there are buyers, the trend is your friend
* - When the buyers stop coming, the trend will end

Jeff said...

I have the othe problem. Fear takes control of me way too often where I miss so opprotunities it is not funny.

Kevin said...

Hi Randal,

I like the rule If you're not following your rules you're gambling....

Hi Jeff,
I've been there too where fear caused me to not trade my methods. The best way to overcome your fear is to trade a very small position. You're not going to make or lose a lot of money. Eventually your confidence will grow if your method has some substance to it and fear will no longer be an issue.

Bullish Jim said...

Great post, Kevin.

In regard to the fear of losing, I've been thinking a lot the past few days about some investing psychology that I read somewhere. Namely, that the pain of losing X dollars is several times more powerful than the joy of gaining that same X dollars. I've come to believe that this is absolutely true. As an example, I've had many days in my life when I've gained as much money as I lost on Tuesday of this week. Most of those days I generally don't even mention the gain to my wife. But, that loss from Tuesday has been near the front of my mind every hour since then. It motivates me to hedge my positions more effectively, that's for sure.

Kevin said...

Hi Jim,

I agree with you. The pain of losing X dollars is greater than the joy of making that same amount of money. I guess that's something some of us need to work on.


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