 Welcome back to the Trade Hacker Mindset. In this episode, I want to talk to you about the psychology of trading FOMO. Trading the markets can be difficult to master and seemingly just out of reach. Professional traders have a secret. Trading requires total mental and emotional control. It requires the Trade Hacker Mindset. All right, so let's jump into this topic of the psychology of trading FOMO. So we all know FOMO stands for the fear of missing out, right? So I was reading and I came across another interview with Dr. Brett Steenbarger, who's a trading psychologist. And I thought it was really insightful, some of the points that he made around the issue of FOMO when it comes to our trading. You know, I think a lot of times in trading, the fear of missing a good trade is almost worse than losing on a trade. It can be, I've felt it before, it's not every time, but I have felt the fact that the fear of missing a trade a lot of times is a stronger emotion than actually losing on a trade that you did get in. Now, one of the things that he talks about that he said was that it's not actually that we have missed a trade opportunity, it's that we actually perceive it as a threat to us. Okay, and so the key word, the key component of FOMO is the word fear. Fear is anxiety. So what happens is when we experience fear, when we experience anxiety, our brain automatically goes into that fight or flight mode. And what happens is the blood actually flows from the frontal cortex, which is the area of the brain that does the higher level thinking, the judging, the planning, and it flows into another area of the brain that is more of the take action, the impulsive type mode. And as we know, as traders, impulses are a lot of times the negative things that impact our trading. It's when we actually do the planning and we go through the process and we're thinking clearly that we are trading the best. When we make those impulsive revenge trades, different impulsive type situations in our trading is what creates negative impacts in our overall P&L. So if our brain actually reacts to FOMO as a threat, then the key to overcoming fear, the key to overcoming FOMO is to find a way to remove that threat. And so what we have to do is we have to tap into motivations that are stronger than that fear. Think about this as an example. Have you ever seen a stray dog or gone to a dog shelter and you see a dog that is just absolutely terrified of everything, right? They've whether somebody beat them at one time or something really bad happened, that dog has zero trust and is very, very skittish and might even be mean or angry if anyone tries to touch them. Well, what happens a lot of times over time is if you find the motivation that is stronger than that dog's fear, which typically ends up being hunger, right? If the dog is hungry, that hunger a lot of times becomes a stronger emotion than the fear. And so if you consistently hand feed the dog food and start to build its trust and start to work into that emotion of that dog's hunger, that becomes a stronger emotion than the fear and over time, the dog will start to trust you and eventually might actually become a loving pet. You know, we've seen this over and over and over again. So to relate that to trading, what motivation is greater than P and L? Because if P and L is the measure of our worth, then anytime we lose, we're gonna feel worse, okay? And that becomes the threat in our brain, in our mind. The motivation for successful traders is the desire to learn and grow. Now, the key component of what I said is the motivation for successful traders is the desire to learn and grow. What you'll see is that most unsuccessful traders are those who are just focused on the P and L, they just come in and they wanna make a quick buck. It's the traders who have a deep desire to really learn and grow in trading that ultimately become the top successful traders. Now, with P and L being the top threat that we need to overcome, I mean, keep in mind, you know, I mean, just for me personally, I'm a very competitive person. I was competitive in sports, I'm competitive with all my friends, and so I naturally was competitive when it came to P and L. You know, when I'm talking with my other buddies who trade or invest, you know, we're constantly trying to one up each other with, you know, who made more money this week or this month or this day. So one thing that I had to, one thing that I had to do to like practice to get away from that is I had to teach myself not to compete based on P and L, I had to teach myself to compete on the process of trading. I had to compete on following my rules. On my whiteboard that I'm looking at right now in my office that I look at every single day at the very top, it says compete on process and that's underlined. So if you restructure your thinking so that your main focus is the process and not the P and L, then if you miss a single trade opportunity, is that really a threat to our trading process? No, it's not really, right? I mean, it's a tiny bump in the road. Yeah, we wish we would have caught that trade. We wish we would have caught that move. We wish we would have invested in Bitcoin when it was $10. We wish we would have invested in Amazon when it was $10 a share, but it's not really something that consumes us or it's certainly not something that we perceive as a threat. But if P and L is our worth, then missing that trade opportunity becomes a threat. So in this talk, Dr. Steenbarger broke it down into three different strategies. And the first he titled as exposure. And there was basically three steps to this strategy. Step number one is to train ourselves in relaxation, in visualization, in meditation, in a breathing exercise, whatever you wanna call it, get the mind out of that fight or flight scenario, okay? So think about this, if you're sitting there and you're focusing on your breath and you're very relaxed or you're visualizing yourself on the beach on a nice sunny day with a little bit of a breeze and you're hearing the ocean, that type of focus on that type of scenario is going to automatically draw our mind out of a fight or flight and into a more relaxed state of mind. Okay, so step one, train ourselves in relaxation. Step two is to create an anxiety hierarchy. And he talks about listing the scenarios, okay? If you're in a trade or if you're just thinking about a trading scenario, listing the things that would create anxiety from the least threatening down to the most threatening, okay? So an example of kind of the most threatening thing is to have a massive significant drawdown, right? A big loss. Another thing might be, well, what if your internet goes out? You know, that would be a threat or a little bit of a frustration all the way down to minimal frustrations like the phone rings while you're trying to focus on making a trade. So list your hierarchy of these different anxiety points that might come up. So that's the second step. List, create an anxiety hierarchy. And then step three is to visualize this threatening situation. Okay, so take the least threatening one, for example. Take the scenario of you're trying to focus on trading and your phone rings, okay? So take that scenario. And then what you wanna do is you wanna use that visualization, that relaxation, that meditation, that breathing technique that they talked about in step one. You wanna take that and pair that together with that threatening situation. So if you are focused on trading and your phone rang and you had that anxiety, you had that frustration, why is this person calling right now? You know, that kind of scenario. Just a very minor frustration in the grand scheme of things, but nonetheless a frustration that could have taken you out of your focus with the markets. Take that little frustration, pair that with the visualization and breathing, visualization of being on a beach, a calm wind blowing the sound of the waves and think about that frustration at the same time. And what will happen is if you repeat that over and over and over again, it doesn't happen right away. But if you, with repetition and consistency of pairing, calming, non-threatening, relaxation, visualization with that frustrating scenario and you do that over and over and over, eventually what'll happen is that threat will be eliminated. Okay, so you can start with the least frustrating of these scenarios and work your way all the way up to a point of thinking about the thought of a huge drawdown that you've had or just the thought of having a drawdown on a specific trade or a specific scenario of a large drawdown and pair that with the relaxation, with the visualization and do it over and over and over again until that threat is eliminated. And here's the cool part. And I know this to be fact, because I've done this, is that once that is locked in, it's in your brain for life, okay? Once you repeat it enough times so that you completely disarm that threat, that's locked into your mind for life. Okay, so those three steps together is kind of the first strategy when it comes to dealing with FOMO from a psychological standpoint. Strategy number two is about changing your thinking, okay? Our thinking is what actually creates our fears, but we can learn new ways of thinking. And one way we can do that, and I've talked about this so many times in past episodes, is to keep a mindset journal. Dr. Steenbarger calls it a cognitive journal. I always call it a mindset journal because that's what works for me in my brain. But he has a very specific way of journaling and he calls it the ABCD cognitive journal. And basically what he has you do is just on a sheet of paper, create four different columns. Column A, column B, column C, and column D, okay? So in column A, that is the activating event, okay? That's the, you know, we're talking about FOMO here. So that would be the missed opportunity. So if you missed out on a trade, that would be the activating event. So you would list that there. In column B, this would be the beliefs of that event, okay? So these are all the negative thoughts that go through your head when you think about that specific event. And then in column C, this is the consequences of these negative feelings. So what are the consequences of having all these negative feelings? You might write things such as it clouds your decision-making process for future trades or it causes you to get frustrated with your wife or your kids or these negative thoughts put you in a bad mood or they cause you to be distracted if you have a full-time job or whatever it might be, you list all the consequences of these negative feelings. Now the goal of doing this, and I'll get to D here in a second, but the goal of doing this is to get to a point so that you are so aware of the consequences, so much so that you learn to hate them, so much so that you realize that all these negative consequences outweigh so much the fact of what you're trying to produce, the consistency that you're trying to get to, that these consequences have such a negative effect and you think about them and you're aware of them to the point where you actually really start to hate them. Because then what you'll do in column D, and this one is called the Disputions column, and this is where you dispute the negative feelings. In other words, you think about how you would talk to somebody else who was in a similar situation. You would dispute these negative feelings, you would see the other side, you would find a way to eliminate those negative feelings, and he talks about talking to someone else who was in a similar situation. So picture yourself sitting in a trading room or sitting there trading with a buddy or sitting there trading with somebody else, and they start to have these negative beliefs or comments about a situation where they missed out on a trade. What would you say to them? You wouldn't call them an idiot, most likely. I might call my friend an idiot, my friend might call me an idiot because that's how we talk to each other. But if you're actually a normal social person who cares about other people's feelings, then you would probably talk them up, right? You wouldn't beat them down or call them names. You wouldn't, you would focus on the positive, help build them up and talk to them about the reasons why, you know, yeah, maybe that situation happened, but here's the positive aspect of it. Here's what to do next time. Here's how you think about that and talk to them in a very positive, reinforcing kind of way. Now, this isn't just like, you know, positive thinking kind of situation, but this is actually the way that you would talk to somebody else who's in this situation, you wanna talk to yourself in the same way, okay? If you're calling yourself names, if you're having these negative thoughts to yourself, that is going to do nothing positive for your trading going forward. So you have to be able to learn from that and you have to be able to talk to yourself in the same way that you would talk to somebody else to make that situation better, okay? So strategy number two was changing your thinking by using the ABCD mindset journal or cognitive journal. And then strategy number three, I thought this was interesting. I wouldn't have thought about this, but I definitely agree with it. And this comes from personal experience. So strategy number three is what he calls broaden and build. You know, one reason that we get caught up in P&L as traders is a lot of times is because we don't have enough other positive things going on in our lives. Think about that, isn't that interesting? Like, I know that for me specific times in my life where I was just 100% focused on trading, a lot of times that's when my trading and my profits were the worst. But it was times when I was focused on other things, maybe that was relationships, maybe that was focused on my health, focused on spiritual aspects of my life that things in my trading were actually better. You know, we hear about diversification and investing, right? You don't put all your eggs in one basket, that way when some assets are performing worse and some are performing better, they help offset each other and over time that creates less risk. Well, what is your life portfolio? In other words, how balanced are you in your life? Is all of your focus day in, day out about trading, about your trading P&L, is that all your folks, is that all you're thinking about? Is that what you're thinking about when you go to bed at night? Is that what you were thinking about when you wake up? And trust me, I'm as guilty as anybody on this. This is how, you know, trading, I love trading, but if my only focus is on trading and specifically the P&L around trading, then I'm extremely vulnerable. I am extremely vulnerable to having negative emotions around different aspects of trading, such as losses, such as FOMO and all of the things that we deal with as traders. So the key is with your focus in trading, for that one part of your life that is focused on trading, the focus should not be on the P&L, but on our growth in trading, on our process of growing and our process of following our rules around our trading. So in conclusion, really, it comes down to rechanneling our fears, eliminating these fears, turning these fears into non-threatening emotions in our brain, measuring our trading, in other words, journaling, understanding, being aware of our emotions and then focusing on the process and not the P&L. So I thought this was really insightful. I hope it was helpful for you as well. If you like this episode, please go to Spotify or Apple Podcast, wherever you listen to podcasts, rate and review. We would love to hear your feedback on the podcast and look forward to seeing you in the next episode. Talk to you then.