What Is a FOMO Trade?

A fear of missing out trade occurs when you notice a sharp rally or slump in a stock, and the desire to join in on the price movement clouds all other analysis of the stock’s current price.

FOMO trades are driven by the very natural bias to believe that was has happened in the recent past will continue on into the recent future, even though from a logical perspective this is an obvious cognitive bias that does not hold true in the real world, especially in the world of financial markets.

FOMO trades also hold a hint of envy, where we desire to achieve the same sudden success that those who are already in on the trade are experiencing.

Unfortunately, the more significant a price movement, the more likely a stock’s price will actually reverse or retrace, so FOMO trades are often losers that need to be avoided at all costs.

Fortunately the pros have offered a few key tips that can help new traders to overcome this common trading pitfall.

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