Price, Levels and FOMO: A Common Mind Blockage

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P.S.: This article might require some basic know how of trading and some trading experience to understand the crux.

Many traders suffer from a common problem called “Fear of Missing Out”.  Today (at the time of writing this article) is 11th November and Bank Nifty is up by 2000+ points during the last two days, which can be attributed partially to certain positive developments.

But as Price action traders, do we need to care about News?

Now, coming back to the problem which we all face and might have faced in past is the feeling of missing out (which is also reflected from a small poll I did in my telegram channel - ). Now to say that we should not have that feeling is not appropriate as there are many things we should not do and very few things among those which are in our control.

As long as the feeling remains within you and you remain calm and composed so that it does not affect your trading, there is no problem.  But if this feeling converts to “Fear of missing out” or commonly called FOMO in the trading world, this will create havoc in your trading and then everything goes for a toss!!

In this post, I will try to address the root of this problem and I hope it will help you next time whenever you face similar challenge. The root of the problem is our understanding of the price and relative evaluation. In other words, our understanding of whether the current price is less (cheap) or more (pricey or costly). I am not talking about fundamental evaluation of a stock or sector or market as a whole, which is an exercise to arrive at a fair price (with present or future potential) and then compare current price to it.  It’s not that. So what it is then?

As I write this post, Bank Nifty Future is trading at 28,900 points and last Friday (which is 2 trading days back), it closed at 26,740 points. This is more than 2000+ points rally and almost close to 8%. So, Let us introspect on this scenario:

1.  Is the price costlier now or is it overbought?
2.  Was the price cheaper two days back on Friday?
3.  Bank Nifty went more than 2000+ points during the last two days, did I miss the opportunity?
3.  If Bank Nifty rose up by 8% in two days, can it go further up?
The point to reflect on here is – Can you make money based on the past events? Trading is all about what is happening in present and what will happen in the future. Though we need past movements to understand the markets and what it is trying to do, we should not attach any emotion to it as we cannot make any money out of it. When we do not have an emotional attachment to the past price action, the relative evaluation that the Bank Nifty is cheap at 20k and costly at 28k will cease to exist and we will start treating both levels at par.

To understand this, let us evaluate the following trades:

Bought Bank Nifty at 20,000 and sold it at 20,500

Bought Bank Nifty at 27,000and sold it at 27,500

Bought Bank Nifty at 50,000 and sold it at 50,500

or even

Bought Bank Nifty at 1,00,000 and sold it at 1,00,500 !!!!!

Many people may disagree with this approach to look at prices (mostly anyone inclined to fundamentals),  but in reality there is no difference the way I look at the above trades. In all of the above trades, you made a profit of exactly 500 points irrespective of whether the Bank Nifty was cheap, mild costly, very costly or insane costly!!!

I hope you have now understood that trading is all about the “Entry and Exit” and at what price any instrument is trading does not matter at all. There is nothing called cheap and nothing called costly. To go on further, I do not believe anything like overbought/ oversold and I can be wrong as I am a small trader. So, no arguments. You had the opportunity to make money when Bank Nifty was at 20k, you still have the opportunity when it is close to 30k and you will have opportunity when it will be at 100k, so ask yourself now. Are we really missing something here? If you understand that we are not missing anything, then FOMO would seem illogical and it will prevent your random trades arising out of “ahh!, I missed this move, let me catch it before it becomes too late..”  or FOMO.

If you get anything from this article, my efforts are not wasted. But, in case you do not understand or do not get anything out of it or may be disagree, lets move on. Someday, we might agree.

Best wishes for your trade and keep your risks under control.

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