Lecture on Improving Trading Psychology: Handling FOMO

Introduction

• Presenter: Mike Bellafiore, co-founder of SMB Capital
• Topic: Trading psychology, specifically handling FOMO (Fear of Missing Out)
• Guest Speaker: Dr. Brett Steenbarger, a trading coach for top hedge funds and traders

Understanding FOMO

• Definition: FOMO is the fear of missing out on potential trading opportunities.
• Psychological Aspect: FOMO is an anxiety or fear that occurs when we perceive a threat to our success.
• Brain Response: The brain responds with a 'fight or flight' response, moving blood from the frontal cortex (higher-level thinking) to motor areas (action-oriented thinking).

Key Strategies for Overcoming FOMO

1. Psychological Reframing

• Remove the Threat: Focus on normalizing missed opportunities as non-threatening.
• Greater Motivation than P&L: Successful traders focus more on learning and growth than on profit and loss (P&L).

2. Exposure Therapy

• Relaxation Training: Practice visualization and deep breathing to relax.
• Anxiety Hierarchy: Create scenarios from least to most threatening and practice relaxation techniques while visualizing these scenarios.
• Repetition: Pair relaxation with threat scenarios to change blood flow and responses.

3. Cognitive Work

• Cognitive Journals (ABCD Model):
  • A: Activating Event (what happened)
  • B: Beliefs (self-talk)
  • C: Consequences (effects on feelings and future actions)
  • D: Disputation (reframing negative thoughts positively)
• Goal: To change how we think about missed opportunities and reduce negative thinking.

4. Broaden and Build

• Diversified Life Portfolio: Ensure a balanced life with various interests and relationships.
• Emotional Diversification: Reduce vulnerability by not focusing solely on trading.

Additional Insights

• Performance Anxiety: May manifest as FOMO but can be mitigated by starting small and scaling up.
• Personality Traits: Neuroticism may increase susceptibility to FOMO while conscientiousness may reduce impulsive actions.
• Openness to Experience: Correlates with creativity in trading and finding new trading edges.

Practical Trading Tips

• Partial Profits: Taking partial profits in low-volume markets can help manage risk.
• Goal Setting: Set specific, actionable plans to achieve goals, not just good intentions.

Conclusion

• Continuous Learning: Focus on growth and consistent improvement.
• Measuring Success: Evaluate trading relative to market opportunities, not just P&L.
• Consistency: Building new habits and consistent practice are key to overcoming FOMO.

Final Words

• Contact Information: Available on Dr. Steenbarger’s blog site, TraderFeed.
• Wishing Success: Encouragement to miss many opportunities but profit from many more.