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FOMO And The Limits Of Control

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After a couple months of really strong momentum in the market and stellar results across all of my trading accounts, this week has been the first in while to really test my discipline. Unfortunately, I failed that test and had to take a haircut as a result (figuratively and literally).

But before I dwell on the cautionary lessons from the past few trading days, I should say that I am still green on the week in both my small and regular trading accounts by a little less than $20,000. January’s small account is growing by inches due to the trading restrictions on an account that size, but I am making progress.

Overall, the market is healthy and momentum is strong, but I could be up another $10,000 if I had followed my own advice and walked away when things weren’t working out.

For those who don’t follow my daily trading recaps on the Warrior Trading Facebook page or on the Youtube account, I have rules in place for when I know it’s time to step away from my trading station and call it a day. If I exceed my daily max loss (currently -$2,000), give up half of my profits for the day or take three losing trades in a row I’m done trading, no excuses. These rules help me avoid emotional revenge trading and have likely saved me hundreds of thousands of dollars that I would have lost by being reckless and chasing profits.

Unfortunately, following these rules is easy until it suddenly isn’t.

This week, the rules were kind of a one-two punch on Tuesday (when I followed the rules) and Wednesday (when I didn’t). Unsurprisingly, even though I gave back half of my profits for the day, I walked away Tuesday with a little over $1,000 in my pocket. However, after that drawdown, I forced myself to walk away as Inpixon (NASDAQ: INPX) surged by 30% and the FOMO seed was planted.

It didn’t help that I started Wednesday with a couple of frustrating trades that resulted in a small winner and a small loser, which essentially put me flat for the first few minutes after the open. I did find some momentum in Fluent, Inc. (NASDAQ: FLNT) and locked in a few thousand dollars. But after that, I tagged The Peck Company Holdings, Inc. (NASDAQ: PECK) after two circuit breaker halts and ultimately gave back half of that day’s profits.

Between the slow start, the missed opportunity in PECK and my lingering frustration with missing INPX the day before, I made the emotional decision to keep trading and recoup my losses. Despite finding some small ounce of luck in My Size, Inc. (NASDAQ: MYSZ), my last position for the day chasing a move in Continental Materials Corporation (NYSE: CUO) that popped up on my momentum scanner ultimately dragged me into the red by -$1,000.

It’s not the biggest loss in the world, but it was endlessly frustrating, even more so because I had been doing so well the past few weeks and felt so in control.

That’s the real danger of FOMO or revenge trading, you feel like you’re losing your grip on something that just a few days, hours or even minutes ago seemed so effortless. All of your strategy, your rules and your instincts are telling you to keep pushing ahead, that you’re still in control and all you need to do to succeed is to push ahead.

Of course, the devious thing is that this is the exact definition of not being in control. That feeling of confidence you and I experience when we have a really good day or make an excellent trade isn’t because we had some special control over the stock market, but because we were making deliberate choices based on our reading of the market and it paid off. Sometimes it doesn’t and that’s okay, we’re still in control.

The moment a trader loses control is the moment they forget what they have control over. No one will ever be able to completely anticipate how any individual stock will behave at a given moment, but any trader can decide how they will behave. It’s not always easy, I know, I’ve been down this same path dozens of times and I still sometimes have to learn the lesson the hard way.
My hope for Warrior Trading is that other traders will learn to trade better from both my successes as well as my failures.

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