Forex Trading Psychology – How to overcome the fomo in trading

Do you want to know more about forex trading psychology? Watch our latest video to learn how to avoid the hidden traps in trading decision making and trade with confidence.

Forex Trading Psychology – How to fight the FOMO in trading

One of the greatest ways to lose money in the financial markets is to chase a trade after it has taken off. There are lot of different expressions used to describe this behavior, essentially revolving around the “fear of missing out.”

This is very common to see during bubbles, as financial markets take off drastically. Essentially, you have the so-called “smart money” getting involved in the market at the very beginning, catching massive gains. As the markets continue to climb, there are a lot of people out there looking to get rich quick. They find themselves buying a move far too late, worried that they are going to miss quick profits.

However, they fail to look at the financial markets for what they are: an auction. In other words, there are times when a financial instrument becomes too expensive, and therefore doesn’t offer much value. This is what causes the occasional pullback, which also can be overdone, essentially offering a financial asset “on sale.” A good analogy is to think of chasing a trade very much like paying double for an item in the store. It’s very simple to understand why paying twice as much for a loaf of bread makes no sense, but if it’s on sale, you may want to buy a couple loads, to save money. Stocks, currencies, and even crypto currencies all work the same way.

Unfortunately, short-term thinking takes over most traders, and they worry about missing the explosive profits that could happen. However, most of the time the traders that get involved because of the fear of missing out into being the people that the initial buyers dump off their assets to. They become liquidity, giving the ability for traders to realize massive profits that had bought a bit more intelligently. One thing is for sure, no matter how strong the trend, markets do eventually pull back. If you have seen a massive move in the currency pair, give it time to pull back and correct before trying to take advantage of a trend, otherwise you may find yourself paying far too much.