How to Stop Chasing Stocks

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Bulls on Wall Street

With a record number of retailers going public in the past 12-13 months, many are learning a hard lesson:

Timing is everything. A trading thesis is meaningless unless you can buy and sell the stock at the right time.

FOMO is at an all-time high as people buy into the hype of meme stocks and cryptos and keep the bag 50% lower than what they bought.

If that sounds like you, this article is for you. First, understand what makes you make these reckless decisions, then figure out how to break the pattern:

Why do we chase stocks?

We know we shouldn’t. But emotions overwhelm us. We can’t afford to miss the trip to the moon.

FOMO is the number one reason traders are chasing stocks everywhere this year. We want to be on the move so urgently that we throw reason out the window and step in.

There are so many opportunities in the markets every day that you will always miss out on an opportunity to make money. You need to learn to deal with the pain of missing out on moves all the time as a trader or investor. You can’t let the event bring emotion to your trade.

Don’t understand technical analysis

Hunting is often the result of not understanding how markets are going. Most inexperienced traders want to buy something just because it’s positive during the day or sell something because it’s negative during the day.

These false assumptions result from a lack of understanding of technical analysis and understanding of how to build a system with defined and accurate buy and sell signals.

It’s easy to get FOMO if you don’t understand how stocks move. You won’t know when a stock is overbought to buy or oversold to sell. They don’t know where the areas of support and resistance are that are very likely to stop a stock from rising.

You need to understand technical analysis (more on that here) to get a feel for market timing. You need to have a trading system that has statistical evidence that it is profitable.

Otherwise, you will not be able to tell when to hunt and when to pick up an entry.

Risk management

It’s one thing to be wrong and buy at the wrong time. It is another to be wrong. There is no reason to lose more than 2-3% of your portfolio on any given trade.

Understand the consequences of not keeping losses small:

The bigger the loss, the bigger the hole you stick yourself in.

How to Fix FOMO. fights

A great way to combat FOMO is to study how many opportunities are opening up in the markets each month. When you find that there are typically 1-3 high quality opportunities each day, you don’t need to be in short supply.

You receive FOMO because you believe in a perceived scarcity of market opportunity. There is no reason to be afraid of missing out on a move when there is another big move tomorrow.

Keeping a trading journal makes it easy to go back and remember that there are high quality opportunities every week. The lack of high quality market opportunity is a myth. And you just need to take advantage of a few good opportunities a month to make a living from trading.

Stop betting on Black Swans

Trading is a game of probabilities. Anything can happen when you enter a trade. Yes, you could buy a stock and it could go up 1000% in a few days or weeks.

But how often does that happen? Maybe once or twice a year.

New Traders: Stop chasing meme stocks up 200% because you think they have more upside potential. Yes it could go up in the near future.

But what is going to happen? You will get stuck holding the bag. Learn how to trade properly. Stop playing.

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