For a trader who has been struggling to overcome FOMO (fear of missing out) for years, I must admit that a recent Bloomberg headline ‘A New ETF named FOMO’ caused me some concerns. The advice we give all traders is stick to the plan. Chasing the market after the move has started can work but is a very high-risk strategy. It is always better to miss out rather than go bust!
So, let’s look at the FOMO ETF. Will this change our view on FOMO trading? The first thing is that the product, which comes from the Collaborative Investment Series Trust (advised by Tuttle Tactical Management LLC), is so opaque that it is difficult to see what you are missing out on.
It seeks to provide capital appreciation – engaging in frequent trading – by investing in securities which ‘reflect current or emerging trends’, through any/ all of the following:
- Equity securities of US, foreign, and emerging market companies of any market capitalization
- Special purpose acquisition companies (‘SPACs’)
- Equity exchange-traded funds (‘ETFs’), fixed income ETFs, volatility, and inverse volatility ETFs
- Exchange traded notes (‘ETNs’), leveraged and inverse ETFs and ETNs
- High yield bonds (commonly known as ‘junk bonds’)
It is the type of investment product that could deliver sensational returns, but any investor would tell you it is a gamble, and you would effectively need to write-off the money. The problem is that most of us cannot afford to do this. We need to have a trading strategy which reflects the risks we are prepared to take. So how do you get rid of the FOMO effect?
Here are a few tips that helped me along the way that should serve to minimize your risk and get you on the right path, and when you have a strategy that produces the results you need, it would be a lot easier to resist the temptation of piling into the ‘must have’ trade.
- Buy on Dips: This sounds like, and is, the total opposite of FOMO’ism. It is trading by setting alerts on pre-defined support/ resistance levels, or simply use limit orders instead of executing at market. It is about following a financial instrument you know and understand. Taking the below chart as an example, you do not want to find yourself entering long positions at the red rectangles. No rocket science involved, buy low/sell high, as in don’t chase breakouts but wait for a pullback and “BUY ON DIPS”
- Move to Higher Timeframes: If you are a day-trader and trade using the 1-minute and 5-minute chart, then start making trading decisions based on the 1-hour chart and use the 15-minute chart for execution
- Make and Stick to a Trading Plan: trading should be 80% planning, 20% execution. The more you plan ahead, the less you will feel the urge to actively manage your trades.
- Diversify and Hedge: If the FOMO effect is so strong act like an institutional investor and makes sure that if when you take on risk you offset this with other assets.
I’m going to leave you with a quote from John D. Rockefeller that well complements our earlier mentioned tips, “The secret of success is to do the common thing uncommonly well”.
Karim Maalouf, FRM
Senior Market Analyst at SquaredFinancial
Karim started his career at a top bank in Credit Risk portfolio management, moving onto Financial and Liquidity Risk, consulting, investment banking, building knowledge and trading experience along the way only to develop a passion for the fascinating world of trading and diverse trading strategies (high frequency, algorithmic and day trading) benefiting from mentorship of leading industry experts. Karim believes that deep education is essential before risking any money. He joined Squared Research in 2018 as an Equity Analyst, but continues to trade on a discretionary basis, using successfully developed methodologies coupled with effective risk management and a winning psychology. Karim obtained a Bachelors’ Degree in Economics from the American University of Beirut (AUB) in 2011, is FRM© certified with the Global Association of Risk Professionals (GARP) since 2017, have successfully passed CFA (Chartered Financial Analyst) Level I, and CMT (Chartered Market Technician) level II.
Disclaimer: This information is only for educational purposes and is not an investment recommendation. The information here has been created by SquaredFinancial. All examples and analysis used herein are of the personal opinions of SquaredFinancial. All examples and analysis are intended for these purposes and should not be considered as specific investment advice. The risk of loss in trading securities, options, futures, and forex can be substantial. Customers must consider all relevant risk factors including their own personal financial situation before trading.