What are FOMO Trades?
FOMO as the word stands is the fear of missing out on a situation or an event happening around. Novice traders get easily swayed away by the glamorous profits some trades make and up their risk appetite only to empty their entire capital on one wrong trade. FOMO in the market usually takes place when a trader sees a big move in a certain cryptocurrency and wants to jump on the gravy train. When a trader feels this fear of missing out on profits they often end up making bad decisions which leads to getting stuck in a highly volatile cryptocurrency.
FOMO trades should be avoided at all costs as it often leads to high losses. These trades are usually taken when traders think that the cryptocurrency will continue to rally as it previously did. The more significant a price movement, the more likely a stock’s price will actually reverse or retrace.
How can you avoid FOMO Trades?
1) Proper trading mechanism – A trader should have a trade journal, in which records are maintained pertaining to the trades executed. Following a particular system for the trader is very important. Analyzing your previous trade rationale and sticking to it for a period of 5-6 months before changing the ideology every week. Stick to a strategy, practice it in live markets until perfected, and see the mechanism do wonders for you.
2) Sticking to a good entry and proper stop loss when taking a risky trade is important. FOMO trades are the riskiest as you can almost never predict when the bull run will stop. When this goes the other way around it can lead to heavy losses if the stop loss is not adhered to.
3) When trading intraday, using the correct indicators can be very helpful. Indicators clubbed with price action are the perfect way to ace a trade. The entry and exit can both be decided by using these.
4) Learning through various courses and articles should help one realize how bad FOMO trades are and how they should be completely avoided to avoid failure in the market.
The chart above is a clear depiction of when a trader feels they should get a chunk of the profit too. The cryptocurrency has gained 400x in a year and this is a clear avoidable trade on a technical basis as the crypto is trading at an all-time high level. Avoid such scripts as these are big red flags and can lead to huge losses.
FOMO trades are purely psychologically driven with no clear rationale whatsoever. This makes them a very vulnerable trade. Every beginner should avoid these situations since they have the least experience and might get trapped in such a situation.