introduction
Ah, FOMO – the Fear Of Missing Out. It’s not just a term for social events or the latest Netflix binge. It’s very much a phenomenon in the trading world, too. You see a stock skyrocketing, everyone’s talking about it, and suddenly, you’re convinced it’s your ticket to a new Tesla. But hold your horses (or should I say, your stocks?) because FOMO buying comes with its own set of rules. And breaking them? Well, that’s a recipe for a financial facepalm.
FOMO Buying: The Thrill and The Agony
Let’s paint a picture: The date is December 20, 2023. A stock named TNC is breaking out of its base in an uptrend, looking as tempting as the last slice of pizza. You, caught in the whirlwind of excitement, decide to jump in with both feet. The price? A slightly stretched 92.34. The dream? A profit target of 118.12. What could possibly go wrong?
Rule #1: Tighten Those Stop Losses
Here’s where things get spicy. When FOMO strikes, and you decide to tango with the market, your stop losses should be tighter than your budget for eating out. Why? Because the market cares about your feelings as much as a cat cares about your expensive vase. Our FOMO-driven trader set their stop loss at 82.12, a brave 11.01% position risk. Bold? Yes. Advisable? Let’s see.
Rule #2: Volatile Stocks Are Not Your Friends
Now, onto the drama. TNC, our protagonist in this financial saga, was as volatile as a soap opera character. Big price swings, dramatic exits – you name it. Buying a volatile stock on a FOMO impulse is like adopting a pet tiger because it looked cute in the movie. Spoiler alert: It’s not going to end well.
Fast forward to January 4, 2024. The stock closed at 88.13, below the purchase price, proving that the market’s tide waits for no one. Our FOMO trader’s reflections? A mix of “I knew it was extended” and “Why did I think volatile stocks were a good idea?”
The FOMO Fallacy
Here’s the crux of the matter: FOMO buying can feel like you’re boarding a rocket to the moon. But without tight stop losses and a healthy fear of volatility, it’s more like strapping yourself to a rollercoaster with questionable safety standards. The trader ended up with a -5.61% ROI on the position, a testament to the merciless nature of FOMO-induced decisions.
Lessons Learned: The Hard Way
Our trader’s takeaways are as valuable as a cold shower after a long night out. First, FOMO is not a trading strategy; it’s an emotional rollercoaster. Second, volatile stocks and FOMO mix as well as oil and water. And lastly, if you must give in to the siren call of FOMO, keep those stop losses tight. Think of it as the financial equivalent of wearing a helmet when you decide to skateboard for the first time at 30.
trade details at a glance
Opening
- Underlying: TNC
- Date: 20 Dec 2023
- Underlying Price: 92.34
- Stop Loss: 82.12
- Profit Target: 118.12
- Market Outlook: Confirmed uptrend
- Position Risk, %: 11.01
- Position Risk to NL, %: 0.91
- Potential Profit (Position), %: 27.77
- Risk to Reward Ratio: 0.40
- Position Size, %: 8.28
- Why Did I Open This Trade At That Point?: Strong stock breaking out of a base in an uptrend.
- Was It An Ideal Buy?: No. Price a bit extended.
Closing
- Date (Close): 4 Jan 2024
- Price (Close): 88.13
- Market Outlook (Close): Confirmed uptrend
- RS Rating: 87
- RS Change: -2
- Remarks: Down several days in a row. Significant loss for a small amount of time.
- What Went Well?: I bought the stock that had big volume when its price accelerated.
- Cause of Error / IMPROVE:
- When I was buying, I was aware that the stock was extended. I shouldn’t do that.
- Base had big price swings.
- If I had bought at the right place, the trade would have been breakeven. I would have been stopped out with minimal loss or small profit.
- Lessons Learned:
- This could classify as a FOMO buy. Another example that FOMO buys are not probable.
- Volatile stocks are hard to keep.
- Position ROI, %: -5.61
- Position ROI (Portfolio), %: -0.46
- Position Open Time (Trading Days): 9
- Position Open Time (Days): 15
In Conclusion: FOMO and Trading
FOMO buying is like eating spicy food. It seems like a great idea at the time, but you might regret it the next day. Remember, the market is more unforgiving than your high school gym teacher. So, tighten those stop losses, steer clear of volatile stocks, and maybe, just maybe, you’ll navigate the choppy waters of FOMO buying with a little more grace and a lot less regret.
Happy trading, and may your decisions be guided by strategy, not the fear of missing out.
