Fear of Missing Out (FOMO)
Stockscores.com Perspectives for the week ending January 11, 2010
Stockscores Founder Tyler Bollhorn will be a featured speaker at the 2010 World Outlook Conference in Vancouver Jan 22 and 23. This is a great conference and this year, Tyler will be demonstrating the new Money Talks/Disnat Trading Challenge game.
Those interested in attending this conference should Click Here to visit the World Outlook website for more information and to register.
There are approximately 15,000 actively traded stocks on the major North American stock markets. That gives investors looking for a stock to trade a lot of choices. Good traders respond to these varied alternatives by being selective and taking the best of the best. Struggling traders end up taking marginal opportunities that may not have a high probability of success. What causes traders to trade marginal opportunities?
Most trading mistakes come down to one of three things:
- lack of trading knowledge
- succumbing to fear
- succumbing to greed
An experienced, well trained trader should know how to trade and identify good opportunities. Despite their knowledge and skill, many of these traders still take marginal trades because of one of the other two mistakes. Simply put, they are afraid that they will miss out on something good.
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Most traders can remember a time when they thought about entering a trade but decided not to because the set up was less than ideal. What makes the memory stick is when that trade turns out to be a great money maker. Being left on the curb as the bus is leaving the station on its way to Profit City is frustrating.
The next time a marginal trading opportunity comes along, we decide to take the trade. Essentially, we are reacting to our painful memory of missing out on the previous marginal trade that proved to be successful.
We are afraid of missing out, and are eager to make money. Blinded by fear and greed.
A marginal trade is marginal because it has a lower probability of success. Keep in mind that the nature of probability is that there will be instances when the low probability outcome occurs rather than the high probability outcome. Otherwise, we would be talking about certainty and not probability.
If you are looking at a marginal trade, it probably means that the expected potential for profit is less than 60%. That means that the trade will work some of the time. The problem is that we remember those times that it did work and take the trade the next time a similar set up occurs. But, because probability is not on our side, that reactionary trading decision often leads to a loss.
The real problem comes when our losses affect our confidence. With the losing trade fresh in our mind we tend to shy away from high probability trades because we are afraid of losing again. The problem is not the quality of the trade that we are considering but our conditioned response to risk as a result of taking a marginal trade.
Any time I have a streak of losers I find that I almost always have taken some marginal trades, those that do not quite fit my trading criteria. When I go back and analyze these trades I realize that the problem is not in my rules but the undisciplined application of my trading rules. By getting back to disciplined trading I almost always reverse my losing streak.
Our brains are wired to remember pain. The pain of missing out on a good trade can lead us to take a marginal trade. What good traders remember is that there are a lot of busses leaving the station. By sticking to their disciplined trading approach, good traders will find the high probability trades that provide some nice rides and for those marginal money makers that we miss, remember that there is always another bus.
This week, I ran the Stockscores Simple Market Scan on US stocks under $20. From the results of the scan, I look for stocks that have good chart pattern set ups. To see what I liked about each of the stocks that I picked, check out this week’s Stockscores Market Analysis video by clicking here.
HCF is breaking from an ascending triangle chart pattern, a good indication that an up trend is starting. Volume could be stronger in support of the breakout but with bullish market conditions, this stock should move higher. Support at $6.28.
The buyers have been in control of SFL for a few months but the stock had stalled in a 5 week consolidation pattern until Friday when it made a good break through resistance with a jump in volume. Support at $13.70.
Click HERE for the Speaker Lineup at the World Outlook Financial Conferance and click HERE if you want to learn from some of the timeless advice from some of worlds best traders including the very successful Tyler Bollhorn.
Tyler Bollhorn started trading the stock market with $3,000 in capital, some borrowed from his credit card, when he was just 19 years old. As he worked through the Business program at the University of Calgary, he constantly followed the market and traded stocks. Upon graduation, he could not shake his addiction to the market, and so he continued to trade and study the market by day, while working as a DJ at night. From his 600 square foot basement suite that he shared with his brother, Mr. Bollhorn pursued his dream of making his living buying and selling stocks.
Slowly, he began to learn how the market works, and more importantly, how to consistently make money from it. He realized that the stock market is not fair, and that a small group of people make most of the money while the general public suffers. Eventually, he found some of the key ingredients to success, and turned $30,000 in to half a million dollars in only 3 months. His career as a stock trader had finally flourished.
Much of Mr Bollhorn’s work was pioneering, so he had to create his own tools to identify opportunities. With a vision of making the research process simpler and more effective, he created the Stockscores Approach to trading, and partnered with Stockgroup in the creation of the Stockscores.com web site. He found that he enjoyed teaching others how the market works almost as much as trading it, and he has since taught hundreds of traders how to apply the Stockscores Approach to the market.
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This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don’t consider buying or selling any stock without conducting your own due diligence.