'Fear of Missing Out' (FOMO) in Trading and Investing.

‘Fear of Missing Out’ (FoMO) in trading and investment.

WHAT IS FoMO (Fear of Missing Out)?

FoMO is a label for an ‘irrational’ fear of – 'what a person will miss out-on’ or ‘regret’ if they fail to take a particular action, or are not present when particular events and opportunities occur. People will assume favourable outcomes, and will tend to significantly overweight short-term opportunities and the near or immediate future.  Emphasis is placed on goals and objectives not yet attained but that they want desperately to achieve.

The diagram below highlights how this typically takes shape inside our mind: 

 The Dangers of FoMO

‘The fear of missing out’ FoMO can lead to sub-optimal and less effective levels of performance, and in some cases can be seriously detrimental to a individual’s trading and career.: Often it results in creating the very situation the person is trying to avoid. As such it is considered a self-defeating behaviour, where the person or individual creates the very situation they are seeking to avoid.  

Whilst hunger for success and a competitive edge are considered as positive driving forces, when this is driven too much by FoMO this can become counterproductive to performance. Some typical affects of FoMO include:  

·         Traders feel overwhelmed and paralyzed by market, they will lack an ability to focus and orient themselves in a productive way.  In these cases traders may find themselves staring endlessly at screens, unable to tear themselves away for more than a few minutes. Typically poor, random and reckless trading with little rational thought for process may ensure. Or else the opposite may occur and traders are unable to commit to a market view or idea, always looking for other enticing possibilities with better risk/reward characteristics and perfect entry points.

·         Traders may confuse their presence in the market, with an ‘illusion of control’ over the market. Thus if they are away from the market or their screens, they feel they have less control over the market.  Many traders feel they have more control over the market than they really do, the effects of this has been highlighted in studies which have shown that the more control traders think they have over the market, the lower their level of actual performance.

·         An inability to exit trades: Traders fear the market will turn in their favour if they are in a losing trade, or they will fear it will move further in their favour if they take profit. - The real fear is that they will come to ‘regret’ this, and thus they avoid taking the necessary action.  – Thus people move stops or hold losers too long, or fail to take profits after strong gains, or soon after the market turns. – ‘Hope’ often will be the result, and ‘Hope’ is not a strategy. – It is a long-held wisdom within trading circles that one should always leave a little something on the table for the next person. This is an example where this particular wisdom would be sound advice.    

·         An inability to persevere for long with patience giving way to impatience. This can be seen in repeated poor ‘market-entry’ timing. - Whilst getting into the market (or exiting for that matter) is not an exact science, very poor ‘market-entry’ timing may occur with ‘too much frequency’.  – Traders may have a tendency to go ‘all-in’, or close to ‘all-in’, the moment the trade idea materialises in their mind. This is instead to taking a more considered and often more effective entry strategy. They may fail to allow for various risks or for the natural ebb and flow of the market, and may thus enter close to the high, up against a critical resistance or ahead of a major event with likely increased volatility.

·         A tendency for traders and investors to overload themselves, taking on too much work, taking on to many views and positions, running overly-complex portfolios, or taking on to many roles. Thus the person spreads themselves too thin, they want to be in all markets, all the time, and capture all opportunities. In these examples, their portfolio becomes too unwieldy, with too many moving parts, and when it breaks down it becomes impossible to unravel. – Often in these situations the individual will not commit themselves to actions which could be beneficial, since they fail to see what is happening, and feel that in taking the necessary actions, they will miss out on vital opportunities. Thus it becomes a negative feedback loop as they become trapped in an endless race and completely out of control.

The positive side of FoMO:

FOMO is not necessarily a bad thing. – It is often a sign of a hunger and thirst, and that can help people to drive themself forward. -  However, too often it is a sign that people feel they are catching up, or risk getting left behind. – It is far better to want to succeed as a primary goal or urge (A positive goal), rather than wanting to succeed for fear of being left behind in some way (A negative goal). –It is crucial that people find the balance where one should accept some ‘Missing out’ versus the ’Fear of Missing Out’.

‘Fear of Missing Out’, is an emotional reaction:

Whilst missing out is a physical inevitability, the ‘Fear of Missing Out’ is an ‘emotional reaction’ which results from the attitude of having multiple and often unclearly undefined options open to us. Most people have FoMO to some degree; however, it is when it becomes a strong negative driving force that it is a significant concern.

 

Steps to start helping to overcome ‘FoMO’:

FoMO is not always obvious, sometimes, even after an event, it is not always clear what drove a person to do something. However, if one notices themself becoming prone to FoMO, and if it has become a pattern of repetitive behaviours, then it is something that needs addressing:  The ability to cope well with FoMO correlates positively and significantly with financial success, social success and high levels of life satisfaction. – To start with addressing the ‘FoMO’ factor, one most overcome certain challenges, these include:

• Re-Framing Goals and Objectives. - In many cases the individual’s drive for success may not be their primary urge, rather their drive for success is being led by a need or desire to catch-up and not get left behind. Thus the goal is a negative goal and not a positive goal. (A positive goal = ‘I want to achieve this’, A negative goal = ‘I do not want this to happen’). Stating a goal as ‘I do not want something to happen’ is often a precursor to that very something happening. Goals should always be stated positively, this should be the case with ‘Long-Term Objectives’, ‘Short-Term Goals’, and ‘Steps’ (Mini goals: Perhaps even on a ‘trade-by-trade’ basis)
• Awareness: - It is possible that most people may be prone to FoMO, and this could affect them on many different levels. At the trading level (short-term and long-term), business strategy level and career level. It can also affect people outside of work in their savings and investments, as well as in social and family settings and relationships.  Awareness requires reflection; this could be self-reflection or feedback, or both. – However, our ability for true self-reflections is extremely limited, as is our ability to heed the lessons of feedback.  – It is therefore something which needs to be worked on.
• Prioritizing: - Developing an ability and skill to balance the various options, outcomes and desires within the limited amount of time and within the constraints of physical, emotional and mental energy and of finite financial resources. 
• Direction and Focus:  The individual attention must me directed fully in way helps them to achieve their goals, whilst remaining balanced and develops ‘peace of mind’. 
• Improve ability to multi-focus: - Learn to manage and function in a way that enables one not to become obsessed that they cannot give their attention to the role, at the expense of other parts of their job and their lives. Thus one is able to work in a complex environment, carry out the various activities with many disparate and disconnected parts whilst effectively and efficiently manage their focus, time and energy productively.  
• Perspectives: - Too often a loss of perspective inhibits affective performance. It is essential market participants are aware that:
• The market will continue to function well without them.
• People cannot and will not get in and out at the best levels. The market will move further and against you.
• That they cannot possibly be everywhere all the time and function effectively:
• People’s energy levels and mental abilities are finite.
• Their ability to act rationally at all times is limited and becomes more limited the more their mental energy is taxed.
• That there are a myriad other opportunities in the future, missing one or two will not be terminal, but continued underperformance could be.
• Coaching and Mentoring: - Effective coaching and mentoring with a qualified coach who has a solid understanding of the nature and background of the environment and markets is probably the most effective way to combat FOMO. – A coach will work with the individual on all the above areas over a period of weeks and months, providing a chance of the trader to reflect on his work, and working to help facilitate improvements in the way the individual works. – More importantly the coach will ensure the participant is fully engaged in the process and stays on course and committed to changing the way the work in order to be more productive.   

BGT Edge Ltd – Trader Performance Coaching and Mentoring: - At BGT Edge we provide high quality coaching and mentoring around the area of trader performance. – Our coaches are highly skilled, trained and experienced, and have worked with leading traders, portfolio managers, and hedge fund owners at some of the world’s leading investment banks and hedge funds in financial centres across the globe, making a real difference to bottom-line performance.   To know more please call us on +44 (0)775 344 6097 / +44 (0)207 993 5362 or email info@bgtedge.com, also check out our website at www.bgtedge.com.