LeoGlossary: Fear Of Missing Out (FOMO)

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The mindset of many during bulls markets. Retail investors get caught up in the euphoria that starts initially and end up jumping in based upon emotion.

As the market takes off, people fear missing out on the huge gains the market is giving. They see others earning substantial gains and want a part of this. Unfortunately, there is no trading strategy or money management systems employed. Since it is emotional, risk is not factored into the equation.

This gets worse the later in the run it is. Early entrants obviously realized the largest move. They are the ones who are able to get out with a profit. Those who enter as the euphoria takes off are apt to hold past the peak. This is where the retail investor tends to get clobbered. As market sentiment wanes, eventually reversing, the investor believes the good times will last.

Rational investors do not chase assets based upon emotions. They tend to operate according to a plan, executing regardless of sentiment. Price actions is used for enter and exit point, that is all.


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