Of the four fears of trading, the one most traders worry about is fear of missing out, or FOMO. It is devastating to watch markets move higher and other people make money without you. FOMO has gripped many people lately, but their biggest fear right now should be fear of loss.
Traders are throwing caution to the wind
I’m seeing far too many investors and traders throw caution to the wind these days. Apparently, they are not worried about losing money, which kind of boggles the mind. I’ve heard variations of: “Keep risk on, ride this out, we’re going higher.” And I just shake my head.
Paying little attention to risk will become a problem – often sooner than later. Most investors are behind the eight ball after losing money over the last 12 months. However, you would think that coming off a year when markets plunged 20% or more, caution would be the order of the day. That is not the case.
On one hand, I can’t blame them. Stocks have been on a roll so far in 2023. Many people are breathing a sigh of relief as it appears the economy could be coming in for a soft landing. The Fed has not weighed in yet, and their view is much more important than the view of a few analysts.
Fear of loss is a healthy attitude right now
But on the other hand, some robust gains do not mean the bear market is over. As we know from last year, gains can be swept away quickly when the trend is bearish. We have heard bold statements about the markets pushing higher many times over the past year – just before markets got whacked yet again.
Here’s my advice:
Be extra fearful of a loss, because it’s so much harder to regain ground in a bear market. Be more prudent and take profits when you have them. Take risk down by cutting losers quickly.
There will always be another day and another trade. If you’re reckless with your money, well, you know the saying: A fool and his money shall soon be parted.
