Human emotions play an important role in the process of trading. Almost all of our decisions are driven by a sentimental or emotional force behind them. It takes a whole lot of discipline and dedication to be able to make decisions that are free of inference from emotions and mental biases.
The usual mental hurdles that can make life difficult in any other situation, including FOMO which stands for fear of missing out and FUD which stands for fear uncertainty and doubt, also apply to the forex market, and trading in general.
Of course the base of all these hurdles is fear. It is fear that can lead you off the straight path of trading. So, let’s take a closer look at these forms of fear and see how you can protect yourself against them in the forex market.
What Is the Definition of FOMO?
FOMO is one of the most common forms of social fear for anybody. As we saw earlier, it stands for fear of missing out. This fear can be seen in any aspect of life. Basically, what this fear creates in your mind is the fear that other people are all having fun somewhere else and you are not part of it.
This is similar to the feeling you might get if you didn’t go to your prom and felt like everybody else went, except you. But the reality behind this fear is that, like most other fears, it is not based on facts.
You fear that you are missing out on something. But are you really? It might be true that in social situations if you are not part of a group that are together somewhere, you might miss out on a little bit of fun.
But at the heart of it, FOMO is completely irrational.
So let’s find out what this irrational fear might do to trading.
The Impact of FOMO on Trading
The fear of missing out in the world of trading is a bit different from other situations. It is rather similar to what has happened with crypto and NFT. When crypto boomed around 2018 or when NFTs boomed for a short period in 2021, it has made those of us who didn’t enter the parade feel like we really missed out.
This fear is truly powerful, because many scammers and con artists use it to make you feel like you have to enter a trend. When in reality this trend that they want to force you into it might be a total scam.
Furthermore, fear of missing out can force traders to trade based on a momentum in the market that does not have a firm and powerful basis.
As you know forex momentums are created mainly through the sentiment of traders. They rush in and create momentum. In those situations, because there are so many traders doing the same thing, you feel like you must also do it.
But if you are driven by FOMO to execute trades, the odds are very high that you will lose the trade. Therefore, it is necessary to learn how to protect yourself against FOMO in forex trading and not base your decisions on this irrational thought.
How to Stay away from FOMO in Forex
To keep yourself away from any type of irrational fear, you need to have a truly disciplined mind that can keep a cool and calm composure and not be affected by baseless sentiments.
But the fact is that not everyone has a disciplined mind. All of us are affected by our emotions one time or another. So what can you do as a forex trader to stay from FOMO?
The only way you can be sure that fear of missing out does not play a role in your trading decision making process is by using a trading plan.
A trading plan consists of actionable steps that one by one will guide your trading process to keep it as logical as possible. First of all it has an extensive analysis stage, where you need to analyze market conditions reasonably and logically.
After that it includes various risk management steps including stop loss and the calculation of risk to reward ratio, all of which will help you stave off losses as much as possible.
What Is the Definition of FUD?
FUD stands for fear, uncertainty, and doubt. Unfortunately, it is not only the fear of missing out that can misguide your trades. Other sentimental feelings can also lead you astray.
The general category of these sentiments are of course fear, uncertainty, and doubt. The source of FUD can be anything from your own internal pressures, social media, pressure by other traders, or other emotions such as greed.
Whatever the source of FUD may be, it is an undeniable fact that you need to stay logical during the trading process in forex and you should not let emotions and mental biases play a role in the decision making process.
Of course that is a difficult feat, because as we said we are all affected by our feelings in one way or another.
How to Protect Yourself from FUD in Forex
There is a lot of useful advice and tips that can help you remain truly logical while trading. Let’s review some of them.
- Never trade when you are emotional: this is truly a key step toward staying logical. No matter what emotion you are feeling, you might be angry or you might be greedy. In either case, you need to train yourself and your mind that you must not trade when you are gripped by a powerful emotion.
- Always have a stopping point: you need to have a clear exit strategy for when you need to exit the market. And there are times that you need to exit for sure. These stopping points can be profit goals or stop loss orders. This way not only does you stop yourself from being greedy, you will also stop yourself from too much losses.
- Never abandon your trading plan: the trading plan that you have created consists of rules and guidelines that must never be abandoned. Under any condition, even if things are going good or if they are going bad, you need to stick to the plan. Because if things are bad, the trading plan will stop you from sustaining too much loss. And if things are good, the plan will stop you from overtrading, which can lead to unfavorable conditions.
One of the biggest challenges that any trader faces in financial markets such as the forex market are human emotions. For example, FOMO or fear of missing out, and FUD which is fear, uncertainty, and doubt, can impact your trades in a negative way. So it is important to learn how to stay away from such fears and protect the trading process and the decision making process from them.