Trading Psychology - The Fear of Missing Something
Trading Psychology – The Fear of Missing Something
In my opinion, the fear of missing out on something is the most common emotion that causes traders to push the buy or sell button when they should not. When a trader makes a profitable trade, chemicals are released in the brain allowing the trader to feel pleasure. It is the desire to re-create that pleasurable feeling which clouds objective thought and leads to poor trading decisions. When looking at potential trades, there are always many variables to consider which would depend on that trader’s trading plan. A set up might present itself and the trader will then weigh all of those variables. When considering an entry a trader will think about the possibility of a loss and also envision potential profits. It is when thinking about the potential profit that traces of the chemical that cause the feeling of pleasure will be released. The brain wants the real thing, not just a trace, and that is where the subtle, almost unconscious shift in reasoning occurs. The trader then pushes the sell or buy button with a less than ideal trade set up.
This is the normal reaction to price action, we are only human. Awareness of any problem is the first step to recovery. There are things a trader can do to mitigate this potential psychological pitfall.
Be Honest with Yourself – Before you enter a trade, ask yourself if you are entering because you see a clear trading opportunity or if you are entering because you are scared of missing out on potential profits.
Use Entry Orders – Entry orders are a great way to make sure that you are entering the market on your own terms and not because you are scared of missing out on something. To place an entry order, click on the entry order tab. The Entry Order box will appear. Select the pair, whether you want to sell or buy and that rate at which you want to do so. You can click the advanced tab to input stops and limits. These orders will remain active even if you log off.
Use Price Alerts – Another way to help overcome the fear of missing out on something is to use price alerts. We can be notified when prices reach a certain level. This is a great tool when you want to see how prices react when they reach an important technical level, such as a support/resistance line or major Fibonacci Level.
The fear of missing something is one of the key roadblocks to trading success. The three methods described above can help a trader overcome this potential problem.
Next: Top Ten Trading Psychology Myths (42 of 47)
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.