Happy Friday, Evolvers!
I hope you’re trading well in this crazy market. The indexes have been surging recently, with the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) up 4% in the past month.
To put this in perspective, the SPY historically averages 9% returns per year. It’s gained nearly half that amount in the past 30 days.
You would think this kind of bullishness would lead to more straightforward trading for many newbies…
However, I’m getting a lot of questions from students struggling to take advantage of these unexpected moves.
When the market heats up, certain problems arise for traders. Chasing, FOMO, and inopportune timing become major concerns for those trying to scalp the momentum.
If you’re experiencing any of these issues yourself, I’m here to help.
After all, it’s Friday, so that means it’s time for our Q&A. And I think the questions I answered this week will apply to many of my students.
Keep reading to see my answers…
“I get a little bit jumpy and enter trades too early. Usually, I’m letting FOMO get to me. I know the potential of the setup, but losing sight of the big picture in the moment. Any suggestions on how to avoid this?”
I get it. We’re all human. FOMO can tantalize even the most experienced of traders.
Tell me if this has ever happened to you…
You see other traders posting online about bagging huge gains, causing you to feel insignificant.
Then, you start thinking to yourself…
If only you had made that trade, you would have those gains as well. Is it too late to get in?
This is textbook FOMO that leads to chasing. And this mentality is a recipe for disaster.
If you wanna have a lasting career as a professional trader, you must extinguish FOMO from your mindset.
And the first step to avoiding FOMO is to never chase trades that are outside of your strategy.
If you make this promise to yourself and stick to it, you’ll have nothing to worry about when it comes to FOMO.
But this is difficult for many less-experienced traders to execute in action.
They see a stock ripping and their emotions take over, causing them to buy way too high into the pattern cycle.
Then, they’re inevitably left holding the bag days (or even hours) later.
Other times, you’ll see the play working after you’ve cut it. You were too early, and it’ll sting that you’re not in it at the right time.
I get it — I’ve been there many times before.
But you must recognize that it’s too late to re-enter. Just accept it and move on.
I promise you … If thousands of traders on social media are pumping a stock that’s deep in the green, you shouldn’t go long on it.
Avoid chasing and, in turn, avoid FOMO.
“When I’m spot-on and in a winning trade, I get so impatient. I focus too much on protecting really small gains in fear of losing my preset risk amount, often leading to missed home runs. How can I improve this?”
It sounds like you’re not giving yourself enough slack when you find yourself in excellent setups. And this is a problem…
If you don’t absolutely crush your best setups, you’re unlikely to realize your full potential as a trader.
I sympathize with your problems, as a lot of newbie traders experience these feelings.
Here’s how I would work to fix them…
Try to determine a dollar amount you’re comfortable risking as a starting position and stick to that size until your account size grows.
Next, try to pay less attention to your profit/loss when you’re actively in a trade.
Rather, focus on the chart and the price action. Ask yourself the following questions…
- Is the chart moving the way you expected?
- Are any of your price targets close to getting taken out?
- Is trading volume increasing (or decreasing) as the chart approaches your key price levels?
- Is the stock struggling to crack a specific key price level?
When you’re risking a key price area, you need to respect that risk. Otherwise, you’re going to end up getting out too soon.
I always say “cut losses quickly.” But don’t let this philosophy spill over into your winning trades.
On the contrary, I want you to be patient with your runners. If the chart is going in the direction you predicted, heading right toward your price target … why would you close the entire position out?
Now, if you still find yourself uncomfortable holding onto your gains … there’s a simple solution.
You can sell a portion of your contracts while still holding a batch for a potential further move.
Doing so allows you to lock up safe profits, protect your healthy mindset, and stay in the trade with less risk on the table.
I think this might be the best option (excuse the pun) for your particular concerns.
Have a great weekend, Evolvers!
This market has some great trading opportunities, but you’ve gotta make sure you’re not falling victim to FOMO or chasing.