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Managing Emotions – How FOMO Affects Your Trading And Your Life

InvestorEducation / Learn to Trade May 29, 2022 - 02:51 PM GMT

By: Chris_Vermeulen

InvestorEducation

Managing emotions you say? Often we hear that we are supposed to trade without emotion as if we’re robots.   That’s a big fat myth. 

If you can keep your head when all about you are losing theirs….
From “If,” by Rudyard Kipling

We’re in a challenging market.  Here are some thoughts on how to not just survive but thrive as we work through a significant peaking phase of the economic and market cycles. 


Know Thyself

It’s critically important that we understand ourselves and what trading or investing style we’re best suited to.  We’re all different, and approaches to trading are not a one size fits all proposition.  Some people are suited to long-term investing, while others are better suited for the hyper-fast action of day trading.  Or something in between or a combination thereof.  

Many traders and investors do not understand and accept their own biases, strengths, and weaknesses. Often they invest in the stock market as the trader they want to be rather than the trader they actually are. They may fail if they’re playing at the wrong place on the trading spectrum.

If you’re a long-term investor, there’s nothing wrong with sitting on the sidelines in cash or mostly in cash.  A bullish trend will re-emerge eventually.  Relax.  Enjoy the pause.  Preserve capital.  Have cash and a shopping list prepared for longer-term holdings as conditions improve.  

If you’re a daytrader, market volatility gives opportunities.  But you better be very good at what is a challenging game if you don’t want to blow up your account.   Shorter timeframes can be the most difficult to be consistently profitable. 

If you find that you can’t sleep at night, you’re exposing yourself to too much risk.  Get smaller if you need to and wait for more favorable conditions.  Pick strategies and sizes that can’t hurt you too badly.  You don’t want to have a huge setback and have to wait ten or twenty years or more to recover.

Making Sense of the Information Deluge

The “Information Age” that was so heralded as I grew up, has become a raging “Mis-Information Age.”   

The analogy of trying to drink from a firehose seems inadequate.   We’re in more of an information tornado these days.  We can easily let ourselves be inundated from all directions with too much information, prolific misinformation, and often conflicting and useless opinions.  

How do we make sense of it all? What are we looking for? 

We’re, of course, looking for precious signals amongst the noise.  Those insights can help us to make good decisions consistently.   Such signals are there, but they can easily be drowned out and lost.

I can’t consistently guess what the Fed will do, where money will flow, or what some talking head on TV or social media says.  Opinions, including my own, are not necessarily reliable.  But I can study and follow the visible signs of money flow in the charts.

Here is where Technical Analysis keeps me on track.  Price and volume do not lie.  Support, resistance, trendlines, and other indicators give us essential clues to what is happening versus what is “supposed” to happen.   It’s critical that we not just see reality but also accept it and adapt our plans appropriately.

Have a Trading Plan

A well-thought-out plan is a roadmap that can keep us sane, solvent, and making progress.

A good plan starts with a clear and realistic objective.  For most, that is long-term financial security and the preservation and growth of our resources.  For some, the focus is more on immediate income.

The plan should detail how much and what kind of risk you’ll take on and how you’ll manage that in a way that can’t take you out of the game.

Be willing to revise and improve that plan.  But be aware of changing your plan willy-nilly.  Don’t be a “holy grail” seeker constantly changing strategies in search of the perfect one.  It doesn’t exist. 

If we think we know it all, that’s a warning sign of missteps to come.  The words “I know that” can be very dangerous and keep us closed to further learning.  We should always be students.  We’re better off if we’re constantly learning, improving our approach, and executing as per our plans. 

Understand the role of emotions 

There’s a model of how the human brain works, with the left brain being analytical and the right brain being emotional.   The left brain tries to make logical sense of things through the dissection of data and rational analysis and is easily occupied with numbers and charts.

If only it were that simple.

The right brain is the source of emotional responses.  Try as we may, we can’t just shut that off. Many studies show that our decisions are greatly influenced by the right emotional brain, mostly made unconsciously.

Rather than trying to suppress our emotions, I find it more helpful to observe and acknowledge them.  For example, when I’m feeling FOMO, it’s better to recognize what I’m feeling and maintain awareness of how that may affect my decision-making.  That works a lot better than pretending that I’m immune to FOMO altogether.  

Take a Step Back

It’s essential to keep the big picture in mind.   Nobody likes to hear, “It’s only money,” and I don’t like saying it.  Money is important.  It’s the fungible resource that allows us to be more of who we are – for better or worse.   Money can provide abundance and financial security for ourselves and our loved ones.  It enables a good quality of life and the means to be generous.   

Intrinsically, money is neither good nor evil.  How we obtain it and what we do with it is what matters.    Pursuing and preserving money is a noble cause for the overwhelming majority of us with noble intentions.   It is okay – actually imperative — for us to do everything we can to be skilled at getting it and keeping it. 

We can’t forget to take care of our own mental and physical health.  We need to take care of ourselves to be here for those we care about.   Don’t neglect to spend quality time with friends and family.  For all of its usefulness, no amount of money can replace our health and loved ones.   Never forget to keep those ends in mind.  They are our raison d’être.

Conclusion

After many years of buying and selling options using a wide variety of strategies ranging from the simple to complex, I find that a simple strategy, like selling puts, can be one of the easiest to manage and most reliable for generating regular profits.  Don’t make it more complicated than it needs to be!

Want To Learn More About Options Trading?

Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.   

If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to check it out, click here: TheTechnicalTraders.com.

Have a great day!

Chris Vermeulen
www.TheTechnicalTraders.com

Chris Vermeulen has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and is the author of the book: 7 Steps to Win With Logic

Through years of research, trading and helping individual traders around the world. He learned that many traders have great trading ideas, but they lack one thing, they struggle to execute trades in a systematic way for consistent results. Chris helps educate traders with a three-hour video course that can change your trading results for the better.

His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility.

He is a regular speaker on HoweStreet.com, and the FinancialSurvivorNetwork radio shows. Chris was also featured on the cover of AmalgaTrader Magazine, and contributes articles to several leading financial hubs like MarketOracle.co.uk

Disclaimer: Nothing in this report should be construed as a solicitation to buy or sell any securities mentioned. Technical Traders Ltd., its owners and the author of this report are not registered broker-dealers or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. Never make an investment based solely on what you read in an online or printed report, including this report, especially if the investment involves a small, thinly-traded company that isn’t well known. Technical Traders Ltd. and the author of this report has been paid by Cardiff Energy Corp. In addition, the author owns shares of Cardiff Energy Corp. and would also benefit from volume and price appreciation of its stock. The information provided here within should not be construed as a financial analysis but rather as an advertisement. The author’s views and opinions regarding the companies featured in reports are his own views and are based on information that he has researched independently and has received, which the author assumes to be reliable. Technical Traders Ltd. and the author of this report do not guarantee the accuracy, completeness, or usefulness of any content of this report, nor its fitness for any particular purpose. Lastly, the author does not guarantee that any of the companies mentioned in the reports will perform as expected, and any comparisons made to other companies may not be valid or come into effect.

Chris Vermeulen Archive

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