≈ Or: How to avoid a hangover. ≈
“Fear Of Missing Out is a pervasive apprehension that others might be having rewarding experiences from which one is absent. […], which may lead to a compulsive concern that one might miss an opportunity for social interaction, a novel experience, a **profitable investment***, or other satisfying events.”
–Wikipedia–
In the financial markets, we lose opportunities every single day but also find them every single day. The thing is that the FOMO can lead us to incur in the Type I Error. The Type I Error, according to statistical hypothesis testing, is to falsely infer the existence of something that is not there, while a Type II Error is to falsely infer the absence of something that is.
The Type II Error will make us lose an opportunity which is OK. The Type I Error will make us lose our shirts.
If you are the type of person that has high levels of FOMO in your blood and want to trade every single asset out there, naturally increasing the probability of a Type I Error occurrence, you have to spend more time measuring risk. That’s the only way you won’t go broke. You have to have specific risk/reward and position sizing rules in place and follow them to the letter.
The Type II Error leads to regret. The Type I Error leads to a hangover from which you might never recover.
Chart of the Day
The Aussie Fakeout
The chart above shows the AUD/USD pair (2016/2017 daily) with a major resistance level around 0.77500. Say you have high levels of FOMO in your blood. Because you can’t miss any opportunity out there, you place a trigger to get long on AUD as soon as it breaks that level. Not only the Aussie failed to breakout twice but touched the resistance many times in the course of an entire year. Depending on where you set your entry trigger, how many times you would’ve been stopped out? Although the FOMO is not good for trading, the main question is: how much would you lose on each fake entry? Position sizing becomes even more critical on situations like this.
Video of the Day
Learn how to Backtest Trading Strategies
Join Coach Tim as he explains a simple and effective method to help with your trading strategy.
Today’s Lineup
Rookie Corner
Lets go hunting! Part II
Last week we went hunting for a new type of trade and we were successful in finding a trade. That part of the hunt can be daunting for some and super simple for others. It has been my experience that there is a direct correlation between the amount of experience one has at looking at charts and the ease with which to find a trade. Finding a successful trade can be something else altogether.
Coaches Lounge 11am EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
Cashflow Club 8:30PM EST
Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.
Halftime Report 12:30pm EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
Market Recap 4:30pm EST
The Market Recap is designed to give you a quick overview of the day that was. While brief, this report is designed to cover all of the major events that drove the markets that day and help you plan for the trading day ahead.
