FOMO (Fear Of Missing Out) drives traders to enter positions impulsively because they see prices rising or because social media is buzzing about an asset. Herding behaviour — following the crowd — amplifies FOMO by creating social proof. Together, these biases cause buying at tops and chasing momentum that's already exhausted.
FOMO triggers: seeing price rise rapidly, social media hype, hearing about others' profits. Herding: following the crowd feels safe but often leads to buying tops and selling bottoms. Narrative bias: constructing a bullish/bearish story to justify the FOMO trade. Regret minimisation: taking a trade to avoid future regret, not because it's a good trade.
When you feel FOMO, ask: 'Does this meet my setup criteria?' If no, do not trade. Have a predefined trading plan with specific entries — FOMO trades never fit the plan. If you missed a move, the market will provide another opportunity.
Track FOMO trades separately in your journal. Compare FOMO trade performance to planned trade performance. The data will show that FOMO trades underperform significantly. Use this evidence to build discipline.
Self-awareness throughout trading sessions, especially during volatile moves
FOMO is the single most expensive emotion in trading. The cure is a detailed trading plan with specific entry criteria, entries, stops, and targets. If the trade doesn't match the plan, it doesn't exist.
Recency bias is the tendency to overweight recent events and outcomes when making decisions, while underweighting longer-term data. In trading, this manifests as assuming recent market conditions will persist indefinitely — expecting further gains after a rally or further losses after a crash. Recency bias creates a dangerous feedback loop where traders chase recent performance rather than evaluating current probabilities objectively.
Revenge trading is the emotionally driven behaviour of immediately re-entering the market after a loss with the goal of recovering the lost money as quickly as possible. This reactive pattern abandons the trading plan, increases position sizes, and lowers entry standards — compounding losses rather than recovering them. Revenge trading is one of the most destructive behavioural patterns and is responsible for turning manageable losses into account-threatening drawdowns.
Anchoring bias occurs when traders fixate on a specific reference point — such as their entry price, an all-time high, or a round number — and make subsequent decisions relative to that anchor rather than evaluating current market conditions objectively. This bias leads to irrational behaviour such as refusing to sell a losing position because the anchor (entry price) feels more 'real' than the current price.
The overconfidence effect causes traders to overestimate their knowledge, skill, and ability to predict market outcomes. After a winning streak, traders often increase position sizes, ignore their rules, and take trades that don't meet their criteria — believing they have a 'hot hand'. Overconfidence typically precedes the largest drawdowns in a trader's career.