Stocks are on fire again.
Is it for good reason?
Well…
The President announced that we’re going to be “Opening Up America Again”
And Gilead’s Remdesivir could be the go-to treatment for COVID-19, based on early positive results which showed patients making speedy recoveries.
All of a sudden investors and traders are fearing they missed the rally.
That, my friends, is what we call Fear Of Missing Out AKA FOMO. It’s a real thing that plagues traders and is probably the single biggest reason most new traders fail.
But not to worry, I’m here to help you manage your FOMO.
This will never be a Total Alpha Trader!
I’m sure there’s plenty of you looking at your portfolio and wondering whether that massive rally wasn’t just a bounce, but the real deal. What if you missed out?
Fortunately, I can show you how to conquer those demons in your head and get you back on the straight and narrow.
This is a lesson you can’t afford to miss.
What causes FOMO?
Markets aren’t designed to make you money. They’re there to transact for the big guys. With tons of cash behind them, they can move stocks around to get you thinking one thing when another is true.
They actually know how to generate FOMO in the market!
You can see this at work intraday and week to week. Take heart because it even fools large funds.
For starters, FOMO isn’t just a market phenomenon. Those friends you have that can’t get off social media…they fear something’s going on without them.
FOMO is like music in a scary movie. It heightens the tension, producing feelings of fear about something that’s happening inside of your television.
There is but one way to combat FOMO – cold, hard strategy.
You need to accept that FOMO isn’t something your willpower can solve. Instead, you plan around it!
FOMO occurs for three reasons: you didn’t fill out all of your trade plans, you didn’t have confidence in it, or you convinced yourself new information changes things.
Let’s break apart each of these one by one.
For the first one, create a checklist. Force yourself to check off a worksheet with the following:
- Reason for the trade
- Entry
- Exit
- Risk
Get in the habit of filling this out for every trade, every time.
Next, let’s talk about confidence in your strategy or plan. It takes time to build, no two ways about it.
The best way to do this is with data and practice. While the cheapest way to collect data is with a simulated account, you can always keep your positions extremely small as well.
Next, log your trades. Collect a journal that proves to yourself your strategy is the real deal. Hold that up high every time you take a trade. If you’re not that ostentatious, a practiced review every morning will be enough.
The last reason for FOMO is ironically the easiest to deal with but one most of us fail at. Lots of traders, myself included, think we’re smarter than ourselves. We think that we can outperform by tweaking our analysis.
Nathan Bear proves this isn’t true in Weekly Money Multiplier. His system is three steps and made him millions. Through most of this market route, he’s spent time with his kids, hardly trading at all. But when he does trade, he makes it count.
Now, the solution for this last problem is effective and simple, but hard to implement…walk away from the computer.
Spend your time preparing for the trading day before and after the market is open/closed. Then, set alerts to your setups. When they hit, put in your orders. Immediately afterward, put in your profit target exit orders and an alert for your stops.
Then, just walk away. Don’t spend time in front of the computer.
You can’t screw up a trade when you aren’t on your trading platform. Get used to letting it work itself out or not.
One great way to practice this patience is with Iron Condors. The most basic rules for them are to collect 1/3rd the width of the strikes. Then either take it off at 50% maximum profit or let it go to maximum loss.
Believe it or not, those are statistically the optimal mechanics at a high-level, with backtests to back it up.
At its core, the key to fighting FOMO is to understand and accept it. Heck, I still get it. So, rather than let it control you, take control of the situation. Limit how and where it strikes.
Let’s take a look at how this works in action.
Beating back FOMO with a plan
When I sent out my Bullseye trade of the week on Monday, I marked up the chart like so.
AMGN Hourly Chart
When I first looked at this trade, I asked myself the following question – What are the reasons I want to take this trade?
Then I listed those out on the chart. There’s a strong trend and a bull flag pattern.
Next, I laid out my entry – AMGN Apr 24, 2020, 220 Call around $5.60.
And my exit – Close below the 30-period moving average.
Along with my target – Profit area up around $227-$230.
This is a trading plan, and it’s something you need to be able to do for every trade you take. When it’s laid out on paper like this, what reason do you have to even look at the chart?
Trading is a probability and risk management game. It’s not about whether any single trade wins or loses, but about making the right decisions over and over.
Not sure where to start?
If you’ve never created a trading plan then you’re in luck. One way to get some easy practice is with my Bullseye Trade of the week. I lay out the entire trading plan from start to finish. That takes away all the ambiguity and guesswork. Plus, you’re getting my best options trade idea that aims to deliver 100% or more on each play.
