The fear of missed trading opportunities
posted 06/30/08 07:01 AM
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Viewed 119 times
 Popular blogger (and trader psychologist) Brett Steenbarger of the Trader Feed blog explains how the "fear of missing" can impact the investment performance of individual investors:
"A reader recently asked me about a problem he was having with "the fear of missing." It appears that he front-runs his setups, getting into trades before he gets proper signals. This fear of missing opportunity has hurt his performance, as it has placed his capital at risk during periods of low opportunity. At the very least, the fear of missing signals can result in poor execution. Instead of buying on pullbacks or selling on bounces, you chase the market higher or lower. The several ticks of retracement typically incurred add up to quite an opportunity cost over time."
As Steenbarger points out, the fear of missing trading opportunities is one of the ten most common problems of trading psychology. However, the "fear of missing" is really just a fear of one's own negative thought process: "Very, very often the consequence of a perceived missed opportunity is a bout of angry thinking turned inward. After missing the good trade, the trader launches into self-blaming and a beating up process that mixes guilt with self-directed hostility. "How could you be so stupid?" and "Look how much money you could have made!" are among the common self-recriminations. It is in this context that the fear of missing is really a fear of one's own negative thinking process. [...] If the result of missing trades is going to be an avalanche of self-criticism, the danger is not financial risk, but the risk of feeling worse about yourself."
What does the "fear of missing" mean for the individual investor, then? It means that the fear of missed opportunities may lead you into trades that are ill-advised at best, just plain wrong at worst. Once you understand that it's impossible to take advantage of every possible trading opportunity, you can minimize this very real fear of "missing out" on trading profits. [image: Cape Fear]
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