fbpx

Trading Psychology: CBT Part 1

In today’s newsletter we will look how we can use CBT for FOMO, a common feeling we all get while trading.

 

We are afraid of missing out on opportunity. FOMO leads to over trading, as the fear of missing out leads to the taking of marginal trades. If you use a trading diary and you keep it up to date with all your trades take, profit/loss, short/long etc. you should be able to see a pattern, a common pattern is that win percentage goes down when the number of trades placed increases. This is because the additional trades are made form a FOMO mindset.

 

So, before we can get the techniques to help with FOMO, we must know why there is FOMO – it is because of fear. Techniques that help with fear and anxiety can also help with your FOMO and over trading. Here are 3 techniques that you can use to help with your FOMO:

 

  1. Being Mindful

Now I know a lot of you reading this are going to say that you are mindful, and I believe you, but are you mindful or just aware of the problem? What I mean by this is that you are aware of the problem, but you do not know how to deal with the problem. Breathing is an amazing technique to use, it helps centre yourself and creates a rhythm for your mind and body that counteracts the chaos and anxiety. Gently breath in for 2 seconds, hold it for 5 seconds and then exhale for 3 seconds, do this for 5 minutes.

 

  1. Determine the severity of the problem

A lot of the time we work ourselves up because we tell ourselves that the treat is big, when most of the time its small. One way to deal with this is to understand that you will miss opportunity, you will miss a trade when you aren’t trading late at night or you step away from your laptop. No matter how many opportunities you miss there will always be another one waiting. The goal should not be to trade every possible opportunity, but rather identify the best possibilities and trade those as well as possible. By reframing the opportunity set and taking the threat out of missing something, you can eliminate FOMO as a motivation.

 

  1. Directing attention outward

When we start fearing we tend to dwell on the worries. By directing our attention outwards, we break the cycle of worrying, getting anxious and then worrying even more. The outward focus in trading could be doubling down on one’s trading process and rules. When we have our trading, rules laid out like a playbook, we can ground our decision making in what we do best. This helps us change the focus from fear of missing a trade to fear of trading poorly. This helps turn fear into actual opportunity. The outward focus leads us to hold off on placing the FOMO trade, helping us to find better opportunities to enter and exit.

 

You are not the only one who experiences FOMO, but don’t let it lead to you finding a trade that isn’t there. Do not get caught out.

 

Ryan Mowatt, The Performance Coach

Leave A Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

No products in the cart.

X