Fight Against FOMO | Podcast Episode #315

0:07
Hey, I’m Ryan Mallory and this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex ever-changing world of Finance, learn what it means to trade profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan Mallory with swing trading the stock market and today’s episode I’m going to talk about some fomo here.

0:36
I know a lot of people deal with it. I deal with it. Everybody deals with it, it’s an inherent emotion. That comes with trading stocks. In the stock market is very, very difficult leads us into a lot of bad trades. And just causes a lot of Havoc for the portfolio, especially when we start chasing the obvious.

0:52
So today’s email comes from a guy will call on Dale’s, we’re not giving away his real name. Dale, writes, dear Ryan, how do you feel with fomo what we’re going to talk about that? I’m looking at Tesla up nearly 100 percent in the last month. Looking at my account thinking about how much I could have made. I know we’re not supposed to Dollar watch, but I can’t help it. When I see a hundred percent gain in one month, on a popular stock. I could have easily traded. Now, I find myself wanting to follow into it. Add insanely overbought levels. I know you must know this feeling, how do you deal with fomo? Sincerely, Dale, good question Dale. First before I get into it let you know what I’m drinking during this podcast, I’m drinking sag.

1:28
Meyer, what’s it called? Here, sag Meyer spirit. It’s a straight rye whiskey. So on a little bit of a Whiskey Rye kick here in the end of the podcast. I’ll let you know what I think about it, but it’s 41.5%, alcohol, 93 proof, so hopefully it’s a good one.

1:44
Last couple of them have been so fomo for those who don’t understand what fomo is once I tell it to you, if you don’t actually know it, you’ll be like, oh yeah, I’ve had that feeling before but was essentially it stands for the fear of missing out and in stock trading of refers to the psychological mindset where a person feels the pressure to invest in the stock market based on the fear that they’re going to miss out on potential.

2:05
If they don’t act right then. And right now, this often happens when there is a lot of positive news or hype about a particular stock or sector or in the case of Tesla you see it up 100% in a given month. You’re like man, I’m missing out on this I got to get in and before it goes up to 100%. So people start to believe that they need to invest in order to avoid missing out on all these potential profits.

2:23
And so this fomo, it can cause individuals make impulsive investment decisions based on limited information and it can lead to emotional and irrational buying Behavior. This type of behavior Can often result in buying stocks at ridiculously high prices without fully understanding the risks involved and they can lead to significant losses in the long run that leaves you as a bag holder wondering how in the world.

2:45
Do I get out of the stock? How in the world did I even get into this? And then you look at hindsight, you’re like, man, I knew I shouldn’t have bought that stock, so it’s important for Traders to remember that fomo is that extremely dangerous emotion and it’s one that sucks us all in and it’s very easy to rationalize.

3:00
So you look at Tesla stock simple. TSLA it’s up over a hundred percent was like 102. Dollars. And it went over like $205 since January 6th. And right now we’re in the middle of February. I look at that. And do I look at it and think, man, I should have gone into that one. Absolutely.

3:16
But if I were to get into it right now where it’s trading at 203 204, how would I manage the risk? Is there a way to manage the risk? And the only way, I would say. Yeah, go ahead and jump right into it is if you could actually manage the risk on the trade, now the higher it gets because you’re talking about a stock that has moved over 100 percent.

3:34
That means when it has pullbacks, you’re probably going to see pullbacks in the range of 4 and 5%. In fact you’ve already seen some of these kinds of pullbacks and it can easily stop you out at a loss. If you’re using stop losses and if you’re not, it can also lead to multiple days of selling that all of a sudden, you find yourself down 15 to 20 percent.

3:51
Yeah, it’s not down that much in regards to how much it’s rallied since the beginning of the year but if you’re just getting into it at the tail end of a move and all of a sudden you see a 15 or 20% pullback. Yeah. That’s going to feel pretty significant to you. The only time that you could have really have gotten into Tesla would have been back on January 17th.

4:10
That was where it was breaking out of this base. That had been forming back in late December, even then it was kind of sketchy because December was actually a pretty bad month. In fact, it was one of the worst months of trading for December that the market had ever seen before. So on 1/17, January 17th, it had already been up about 25% when it started to break out above 125.

4:29
That’s where it was coming out of the base and it essentially ran like 25 percent in just a matter of a couple weeks. So even then you’re asking yourself, okay, do I really want to jump into a stock that hasn’t had any real pullback and has managed to move 25 percent in just a couple of weeks that would probably be a red flag for me because a lot of the stocks that are running hot right into a breakout they oftentimes have fake outs, right?

4:51
So even then from a technical standpoint I probably and well I never did trade it anyway. So you can say that I passed up on the trade any case because of the fact that how much it had already run 25% and then it pulls back for a couple of days and then that’s where it took off to the races, going from like the 125s within a matter of like six trading sessions.

5:10
It was at 180. And then, over the next couple of weeks, and let’s not forget, once it hit 180, it came back down into the 160. So you’re already talking about a good, pull back right there as well at the end of January and then it runs higher nine out of the next 11 days.

5:26
But when you look at the chart, these pullbacks and the stock, for instance, the pull back on February 9th, it goes from the highs of at 2:14 and pulls all the way back down to 187. That’s a twenty seven dollar pull back on the stock from highs to lows.

5:42
Some people hold through that yeah but if you’re just getting into the trade and you’re starting to get in at 205 206 and then you see a 10% pullback that’s going to hurt your interest pretty good. And yes, it rebounded, but your emotions are now very high to where you think. Oh gosh, I got in at the top, I’m getting out. So you get out and then all of a sudden it runs right back up.

5:59
Again, I’ve been victim to that, not so much buying a stock that’s over a hundred percent. At least, I haven’t done that in decades probably but the notion of getting in a stock and then you start to see a pullback significantly in the grand scheme of things. It doesn’t look like much but because you got in so late on the trade because of fomo, you’re all of a sudden bailing because it just feels too much because you’re losing too much right out of the gate.

6:22
So yes when you see a stock that’s up 100% like man I should have jumped into that. I’m probably missing out and you are, but just because you’re missing out on a trade, doesn’t mean that you should be in it. I mean, in hindsight, everything looks clear. I mean, this email is being written in hindsight, man. Did you see it? It went up a hundred percent, I should have been in it.

6:38
I’m wanting to get in it now because I don’t want to look at it again in a month and say, man, it’s up another 100%, and it may be up another hundred percent but then you got to ask yourself what are the odds that it goes up?

7:00
If this is indeed the bottom and if it’s not the bottom, then we’re looking at a break of the October lows, which could send the markets really down hard and wipe out all those gains and Tesla probably in the process. But one of the things that I do in order to keep myself from FOMOing my way or, you know, jumping into a stock out of the fear of missing out is by letting risk-reward guide me and that’s one of the basic tenets of all my trading and what I think should be for everybody’s trading strategy is reward and risk.

7:28
What is the reward? What is the risk? And also what kind of risk can you handle? For me, unless I’m looking at risk, usually between three and five percent on every one of my trades, I’m not going to go usually outside of that. So if that’s the case, Tesla, which can easily pull back, 10% in two days, probably isn’t going to be for me.

7:46
If I can’t find a stop loss, you know, within my three to five percent range, probably not going to trade Tesla. And then, let’s just be honest. Tesla has incredible amounts of headline risk. More than anything probably because of Elon Musk, he can say some things, he can do things. I mean, look how much Tesla struggled in the month of December because of the Twitter fiasco, I mean it really really struggled, but when I start to look at, you know, Tesla it’s up over a hundred percent so you get into it.

8:14
Well even if I wanted to get into it, can I find a really good reward-risk ratio? No. I’m looking at this right now. It’s trading at 204. If I was to get in at it 204 my stop loss would have to be at 187. That’s almost a 10% stop-loss right there. And the reason why I say 187 because that would be the previous higher low on the existing uptrend off of the January lows and I’m trying not to get too chart-y here on a podcast, but I’m just trying to explain to you the reward-risk ratio here so automatically, I’m not going to get into it. I don’t care how good the setup is. If I can’t manage the risk to my liking to keep the emotions at bay, I’m not gonna get into it, I’ve passed on so many stocks because of that very reason over the years.

8:53
Before I forget, one of the things I would also encourage you to do is check out swingtradingthestockmarket.com, that’s the website that goes along with this podcast. With it each day, you’re going to get videos that are going to include updates on the S&P 500, the NASDAQ, the Russell 2000. Also, you’re going to get updates on all the big tech stocks plus my daily watchlist, stocks I’m looking at and my weekly bullish and bearish master watchlist update.

9:17
So check that out, swingtradingthestockmarket.com, and in the process you’re supporting this podcast. But to let Dale know, and to all the listeners out there, do I feel FOMO when I see stocks like Tesla moving up 100%? 100% do. And do I ever consider jumping into them? Yeah, I do. But the reward-to-risk ratio is so important to me that if I can’t manage the risk, I’m not going to get into it.

9:37
Is there are times where a stock might have run 50% and then it bull flags and creates a really tight reward-risk ratio for me that I’m willing to get into? Yeah, I’ve done that before and I’ve made good money off of it, but I’m not going to do it unless the reward-to-risk ratio is up in my favor. And so, even when you don’t succumb to FOMO, fear of missing out, even when you don’t succumb to it, what can it also create as a by-product?

9:59
Create a lot of frustration, as a trader. A lot of frustration. I did a podcast not too long ago about The Raider. And I was talking about myself, you know, being on the wrong side of the market at times throughout this year, actually much of this year. I’ve been on the wrong side of the market, not in a heavy way or to where I’m like 100% short or, you know, over-leveraged or anything like that.

10:18
I’m talking like 12 positions and usually no more than like 20% of my capital employed at any one time. Usually it was only about 10 to 12 percent of my capital but seeing the NASDAQ run and seeing the S&P 500 run. Does that create some frustrations for me? 100% it does and it will make you doubt yourself as a trader, no matter how long you’ve been doing it.

10:37
But one of the benefits, I guess to what I’ve been doing is that I’ve been doing this for so long, about over 30 years now, that I’ve had plenty of these moments as a trader to where I was like man this really stinks man. Am I going to come out of this on the other side okay? And the answer is yes, I will.

10:53
In fact, this time I’ve probably done way better handling this crappy period of my trading than in times past. In times past, I would have racked up way more losses than I did. Right now, I’m still in single digits in terms of how many trades I’ve placed this year. And so in times past during that same period of time, I might have had 40 or 50 trades.

11:13
So you’re talking about a much bigger drawdown and for me right now, I’m looking at it like a one and a half percent drawdown in my portfolio, which is easily recoverable with one trade, in fact. But like I said, though, the emotion that comes with not succumbing to FOMO is frustration because you’re like, man, I wish I was still in it.

11:31
Now, if you get into a stock and out as a result of FOMO and let’s say Tesla you get into Tesla after it’s already been up 100% and it ends up going to four hundred dollars a share which would be another 100% from there. Does that mean you made a good trade? Now you might have just put a death sentence on your portfolio, not in with that particular trade because you made money off of it but in your future trades because you’re going to be more willing to FOMO into other stocks that you shouldn’t be FOMOing into either.

11:58
And as a result, you’re going to lose far more money than the money that you made off of Tesla. And if you’re undisciplined getting into the stock, you’re probably going to be undisciplined getting out, which means you’re going to bag-hold some of these stocks that don’t work out in your favor when you FOMO your way into it.

12:17
So you got to look beyond this one trade here, could I justify getting into some of these stocks that have run rapidly higher like Nvidia, for instance? Yeah, I could justify it. I could tell myself. Oh man, this thing’s going to go way higher than that. I’ll be so glad when I look back that I got into it, I could.

12:33
It’s going to be a lot worse trades in the future. Yes, you might get away with FOMO the first couple of times or even, you know, for a good stretch. But eventually those roosters are going to come home to roost. You’re going to get into stocks that you shouldn’t have been FOMOing into. Instead of being up 100% on the trade, you’re going to find yourself down 50 or 60% on the trade. And then when you’re right in the past, you tend to increase your position sizes because you want to be even more right.

12:56
And so then you start FOMOing into it with even more capital and you lose even more money. I say this because I’ve seen it from so many traders. And you’ll hear me oftentimes say, trade what you see, not what you think. Do you know why I say that? It’s because we start to think that we can, quote, outthink the market, that we can be smarter than the market and the market is going to do whatever it wants, whether you’re in it, whether you’re not. If you died tomorrow, the market will keep trading.

13:21
Like as if you never were a market participant, that’s just how it works. Market doesn’t care about you. It doesn’t care about your positions. It doesn’t care that you ever even placed the trade. It’s going to go where it wants to go, so you can’t outthink the market and it’s better to look at what you see on the charts and go from there.

13:39
Like I said, I’ve been frustrated as a trader quite a bit, I think frustration is something that I can handle pretty well, I deal with it, I move forward because I know what’s on the other side. I know that these are periods as a trader, that I will go through and because I’ve been doing it enough where I’ve had bad stretches.

13:55
I had a stretch of trades one time, this was years ago, I think I had 13 losing trades in a row, without a single win. A single win, 13 losing trades in a row. And I’m not sure if that’s the worst stretch, but all throughout that time, I didn’t lose my marbles. I didn’t say, you know what, I’m going to YOLO it all into, you know, some out of the money puts on Tesla, or Nvidia or something crazy.

14:16
No, I just kept following my process because the kind of market that we’re in right now where you’re getting these wild price swings, where you get these days where the market swings way lower. And then by the end of the day, it’s way higher. And then when you get short, the market just keeps cranking higher anyways. Even though there was the technicals that supported it and those kinds of markets.

14:34
It’s easy to get stopped out quite a bit and that’s one of the things where the current market conditions that we’re in is penalizing the people who adhere to risk management. I’ve been getting more frustrated traders right now email me right now and I encourage you to keep emailing me because I will read them and I will try to make a podcast episode out of them.

14:51
You can send it to ryan@shareplanner.com. But the reason why they’re so frustrated as traders right now is because they keep getting stopped out. They’re like, man, every time I get into a trade the next day, I’m out of it. Yeah. Me too. Why is that? It’s because we’re trying to manage the risk.

15:06
Now, will it always be like that? No, there will be better conditions, more favorable, but the market’s in a very irrational state right now. Something’s definitely not adding up in the market. You had a hot CPI report that came in at 6.4% when they were expecting 6.2%. Market rallied anyways, even with core inflation.

15:22
Beating, the market took off anyways. You get the 10-year yield breaking out, you got the two-year yield breaking out, you got the 30-year yield breaking out. That alone should be causing the market to go lower, be putting pressure on equities, but it’s not. Market’s ignoring. You got the Fed coming out every day talking down their actions, like oh, it’s no big deal. We are not going to keep raising rates. Meanwhile, they are. You got zero days to expiration options where people can’t even look beyond the day that they’re trading in. Right now, the majority of your option trades are zero days to expiration.

15:56
That means they’re buying an option that will expire later that day. They’re doing it to create these delta squeezes in the market. So there’s going to be times when as risk managers, it becomes very frustrating to handle a market that keeps stopping you out.

16:12
It’ll make you think this trade strategy does not work. And trust me, there’s times where I think that too. Where I’m like, man, what am I doing wrong here? I go back and I’ve looked at all my trades. I really don’t regret any of my trades and that’s a fact. Did some of them lose? Yeah, they did. But I look at them as like should I have done anything different?

16:29
Well in hindsight, I shouldn’t have traded all my stocks that I’ve lost on. But that’s hindsight. Knowing what I knew at the time, did I make the wrong decision? No, I just got stopped out. I got stopped out with small losses, but I’ll continue to trade that way because right now, the market’s rewarding the people who are throwing caution to the wind, just like back in 2020 during the COVID pandemic.

16:46
People were just YOLOing into option trades. They were showing zero regard, zero fear of the market and they were being rewarded for it. But then the same people come 2022, they can’t even pay their taxes on the gains that Uncle Sam wants because they lost it all within the first month of trading in 2022.

17:03
So you got that same mindset that’s back where it just feels like the people who manage the risk, they’re being punished and it’s penalizing the people who have no stop losses, they’re the ones that are being rewarded and it’s true that they are. But that mindset will knock them out of the market in very short order because it doesn’t last forever.

17:19
Meanwhile, the people who manage the risk, the people who use the stop losses, the people who follow their trading plan, they trade what they see, not what they think, they don’t try to outthink the market. They’re the ones that last.

17:35
If you enjoyed this podcast episode, I would encourage you to leave me a five-star review. Those do mean a lot to me. They help me get the message out. There’s a lot of jerks out there that try to knock it down. I’d encourage you to offset their opinions and viewpoints. But leave me a five-star review. If you find it in your heart, that would be greatly appreciated.

17:52
Also, make sure to check out swingtradingthestockmarket.com. That supports the podcast and make sure to keep sending me your emails. ryan@shareplanner.com. I do read them and I want to make an episode out of yours. And I’m still trying not to forget I know I keep doing these whiskey reviews at the end of the podcast but the Sagamore Spirit, you know, it had a lot of peach and apricot flavors to it.

18:10
I wasn’t overly crazy about it. And it also has some tobacco flavors that are really strong. It’s a very strange mix of flavors, they don’t make good bedfellows. But scale of 0 to 10 man I want to go 4.1 on this one. It’s kind of kind of extreme. Maybe I’m being a little bit harsh, but I just don’t think the Sagamore Spirit is very good, at least the straight rye whiskey. It’s 93 proof and it’s got a little punch too so I don’t like that either.

18:29
So, Sagamore Spirit 4.1. I can’t go any higher than that. Case closed. All right. Thank you guys. God bless. Thanks for listening to my podcast, Swing Trading the Stock Market.

18:45
I’d like to encourage you to join me in the SharePlanner Trading Block, where I navigate the stock market each day with traders from around the world. With your membership, you will get a 7-day trial and access to my trading room, including alerts via text, email and WhatsApp. So go ahead, sign up by going to shareplanner.com/tradingblock. www.shareplanner.com/trading-block and follow me on SharePlanner’s Twitter, Instagram, and Facebook, where I provide unique market and trading information every day.

19:05
If you have any questions, please feel free to email me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.