2 ways to beat the fear of missing outJuly 7, 2017
As market participants, we all share the experience of missing out on a trade, be it because prices did not hit our entry target, or because we were too afraid to place the trade. We have all felt the frustration and the desire to kick ourselves for not entering the trade before the big move, especially when we had predicted it beforehand. Many traders fear this frustration, leading to them placing impulsive and irrational trades in an attempt to prevent themselves from ever missing out on a trade again. Often this results in overtrading, inconsistent profits and sometimes devastating losses.
Chart 1: Missing out
Source: NextView Chart, DBS daily chart
For example, investors looking to enter DBS at $14.30 would have missed the big move up.
So is it a question of whether we should queue for our entry price or whether we should try chasing stocks that we missed? I believe it all comes down to trader psychology. Here are 2 things we can use to tackle the fear of missing out.
1. Have a clearly defined trading system / strategy
Every professional trader has a plan or a set of rules they adhere to when trading. It could be a strategy to only buy at support and sell at resistance, or a strategy that utilizes indicators like Stochastics and RSI. A trading strategy gives a trader clear guidelines and directions to success, and more importantly helps separate emotions from trading. Keeping our emotions in check will help prevent impulsive trades due to fear of missing out and secure a trader’s survival and success in the market.
Chart 2: Trading strategy example
Source: NextView Chart, Jumbo daily chart
A clearly defined trading system / strategy helps to keep emotions out of your trades and provides guidelines on whether to buy or sell. You may customize your own trading rules to your liking.
Table 1: Examples of trading rules
|Never lose more than 10% in one trade|
|Always have a stop loss|
|Never buy at resistance|
|Only buy when RSI is oversold|
But what if you miss out on a trade because it did not fulfil your trading rules? We then come to the second and more important point.
2. Consistency is key
The frustration of missing out is often the number one cause of traders breaking their trading rules. While breaking your trading rules may result in occasional short-term profits, consistency will be compromised. In the long run, traders should aim for consistency rather than one-off home runs.
Sticking to your trading rules might be difficult at times. This is where a trading buddy or community might be able to assist you. Keeping a trading journal recording your thoughts and reasoning for your trades is another useful way of keeping a steady head when you’re thinking of breaking your rules.
By sticking to your trading rules, you will be able to develop your trading psychology and discipline over time, which ultimately distinguishes a good trader from an amateur.
Every trader experiences the fear of missing out. Some succumb to it and suffer heavy losses through impulse and irrational trading. It is vital that traders recognize this weakness, and through properly defining trading rules and consistency adhering to them will their trading psychology mature and subsequent profits be consistently achieved.
If you wish to know more information about stocks, you can speak to your designated Trading Representatives or a Dealer at a Phillip Investor Centre near you.
About the author
Mr Timothy Ang
Mr. Timothy Ang currently provides dealing services to over 10,000 trading accounts and is part of the POEMS Dealing, the core in-house dealing department of Phillip Securities Pte Ltd. Timothy’s investment methodology uses a combination of Fundamental and Technical Analysis, focusing on strong companies that show future promise. Apart from his dealing role, he often provides training seminars on Fundamental and Technical Analysis topics to further enrich his clients’ financial knowledge. Timothy holds a Bachelor Degree of Accounting and finance from the University of Western Australia.