Managing FOMO, HODL, YOLO, FUD, AND BTFD (!) When Trading.
Some strategies you can use to control the emotional rollercoaster that is Highly Leveraged Day Trading.
“The most important quality for an investor is temperament, not intellect.” – Warren Buffett
It’s no coincidence that there is a litany of well-known quotes, online resources, and books written on how to best control individual emotions and therefore increase discipline on execution when trading and investing.
Trading, especially highly leveraged trading, is an inherently emotional endeavor. I recently made the mistake of labelling my wife’s emotional response to something as ‘Irrational’. I can categorically recommend not doing that. But in the fast-paced environment of trading, potential for significant gains or losses, and constant decision-making pressure create a perfect storm for often irrational emotional responses. Acronyms like FOMO (Fear Of Missing Out), HODL (Hold On for Dear Life), YOLO (You Only Live Once), FUD (Fear, Uncertainty, and Doubt), and BTFD (Buy The F*cking Dip) encapsulate the emotional highs and lows traders experience. Let’s consider some background;
Why Trading is Emotional
High Stakes: Trading involves monetary gains and losses, and particularly if leveraged, is magnified and creates intense internal pressure and risk to your personal wealth.
Uncertainty: Markets are inherently unpredictable, and this uncertainty leads to anxiety and stress.
Rapid Decision-Making: The need to make quick decisions without complete information often triggers illogical, emotional responses.
Social Pressure: Seeing others’ successes or failures (think finfluencers on X!) can adversely influence our own trading behavior, leading to emotions like envy or overconfidence.
Emotions in Trading and When They Occur
Fear: Often arises after a prolonged losing streak or during market downturns. Fear can lead to hesitation, missed opportunities, or premature selling.
Greed: Typically occurs after a winning streak or when seeing others profit. Greed can lead to overtrading, increasing leverage, or not taking profits. One of my favourite sayings (learnt the hard way over many years) is; “Pride comes before the Fall” (Proverbs, 16:18). As a general rule I significantly reduce position sizes immediately following a highly successful trade.
FOMO (Fear Of Missing Out): Common when a trader sees a big move in the market they’re not part of. FOMO can lead to chasing trades or entering positions without proper analysis. For me, this is the #1 emotional cause of my losses.
Revenge: Happens after making a loss or missing a profitable trade. Regret can cloud judgment and lead to revenge trading.
Overconfidence: Often follows a series of successful trades. Overconfidence can lead to taking excessive risks.
FUD (Fear, Uncertainty, and Doubt): Occurs during periods of market volatility or bad news. FUD can result in panic selling or staying out of the market unnecessarily.
BTFD (Buy The F*cking Dip): A response to market drops, believing they are temporary. While potentially profitable, it can lead to catching falling knives if not well-timed. Again, one of the watershed moments for me was when I created a personal mantra; “Don’t catch falling knives. Drive the F*cking Knife Deeper”.
“The investor’s chief problem—and even his worst enemy—is likely to be himself.” – Benjamin Graham
I’m not sure I’ve got a lot to add to the wealth of information, advice and trader support services out there, but I do believe that having some kind of framework / some strategies in place is critical in becoming a successful trader. So here’s a couple I’ve found useful over the last 20 years and use on a daily basis:
Research and Understand the Trade: Why are you placing this trade? What indicators, data is driving you to make this trade (TA / Macro / Data?). Is it reliable? Is it a “F*ck Yeah” Trade? Does the R/R stack up?
Develop and Stick to a Trading Plan: Cliche, yes. But there’s a reason it’s mentioned often. Physically writing your plan out, based on whatever inputs you’re using (Technical Analysis, Macro Analysis, Statistical Analysis etc) and being able to refer back to it as the price action is unfolding, ‘ticking off’ the levels it’s hit or breached, is an excellent form of self-discipline.
Do You Research Then Walk away from the Screens: If I’ve done the initial work, placed a trade and additional orders if warranted, and as well as my stops & take profits based on the available data, the best (and hardest) thing I do is to walk away from the screens. When I was living on the Gold Coast I used to hit the gym for some laps and a sauna, or schedule massage over this period. If you need to look, you can check your P&L, however you’re not being sucked into making irrational decisions based on FOMO, or Fear given what you ‘think’ is unfolding on the chart.
Set Limit Orders on the Favourable Side of the Spread: I often do this as a way of getting myself comfortable that I didn’t jag the absolute highs or lows. There is no worse feeling than when this happens, and doing this prevents this outcome. The key to this is then similar to the above. If you’ve done the work, set your TP / SL etc, shut down the screens and walk away. This will help prevent FOMO and chasing the entry…and 95% of the time, you’ll get an alert on your phone confirming the fill.
Whatever your Position Sizing is, Reduce It: Going to key in 10 contracts LONG? Make it 8. This obviously depends on your ‘style’ of trading but for me, given my relative certainty in the end-to-end market moves, I usually place additional limit orders following the initial trade, at more favourable prices. I’ve been forced to liquidate what would have been profitable positions many times due to a (in hindsight) much larger initial position size than I should have held.
Use some form of Coding: For me, coding conditions into some form of software such as Visual Studio, using the help of ChatGPT has improved my dicipline significantly. If it’s a 50:50 trade that has some data points pointing higher but some suggesting lower; I use this asset to print results such as “No Trade if Market was >x during period y, Dickhead”, or similar.
“Investing is not about beating others at their game. It’s about controlling yourself at your own game.” – Benjamin Graham
Have Multiple Strategies: For me, I run three main strategies/accounts. Two of these produce high ROI’s YoY and so ‘reduce’ the FOMO pressure on me. It allows me to be more patient and disciplined if I’m not 100% on a trade, given I know the other strategies are doing their thing. You obviously need to put in the work and backtesting to ensure that you’re comfortable that the strategy is going to be profitable over time, but for me;
Strategy 1: Dedicated to the High Probability Alerts I send out on the AUS200. Since I began producing these,they’re running a 87.87% win rate and involve virtually NO discretion from me. One trade at 10am open, known stops and limits. One is hit either way, usually in the first 10 minutes of trade. If you’d like to read a bit more about this, checkout one of the premium substacks here or shoot me a message.
Strategy 2: A more internally complicated AUS200 strategy involving additional limit orders based on overnight moves, opening gaps and premarket moves I trade on behalf of a fund, of which I’m an investor. However again, once the trades are placed there is NO discretionary decision making from me (Read: No way I can F*ck it up)
Strategy 3: Discretionary Trading: This is where I am using the statistical model I’ve built on AUS200 / FTSE / SPX500 to make arbitrary/discretionary trades based on what I consider to be High Probability setups. These could be around key data events, or just simply a mispricing of an asset class, based on historical precedent.
“Emotions are your worst enemy in the stock market.” – Don Hays
In my case, the best thing I ever did was go down the Quant / Statistical Rabbit Hole, as I feel like the majority of the emotions that can negatively impact my trading are essentially gone. I can sleep like a baby knowing I made the best trade considering the information I had available, and rarely have any ‘Revenge’ type trades. For example:
Fear: I know the absolute worse case outcome, historically. I work out my potential loss based on this, and accept it. Sure, we may get a ‘Black Swan’ type event, however I’m comfortable with that.
Greed & FOMO: Understanding the statistical probability of achieving certain profit levels helps me stay disciplined and avoid chasing unreasonably high returns which I would have thought possible with the juices flowing, otherwise.
I would encourage you to find some kind of similar framework / mentor / program which gives the same level of confidence, as it seriously impacts the quality of your trading by removing many of these emotional urges.
In summary, I don’t have a Silver Bullet to FOMO, HODL, YOLO, FUD,or BTFD, but these are a few of the strategies that have helped me control irrational decision making over the years. Any I’ve missed? Feel free to leave a comment.
Cheers
Marto
Excellent read mate.
Great write up, thanks Marto!