FOMO

FOMO is an emotional response characterized by the apprehension that others are experiencing rewarding events from which one is absent. In trading, this translates to a compulsive urge to participate in a market move, often driven by observing rapid price changes or hearing about others' profits. This psychological bias can override rational analysis, leading traders to abandon their established trading plans and risk management rules. It typically manifests as impulse entries after significant price advances or declines.

For a retail trader, FOMO often results in poor entry and exit points, leading to unnecessary losses or reduced profits. Traders might enter trades at market tops, chasing price, or exit prematurely, fearing a reversal. This emotional trading bypasses disciplined risk management, potentially exposing a trader to excessive risk per trade or even ruin risk. For instance, entering a EUR/USD trade after a 100-pip move without a plan increases the chance of a reversal-induced loss.