FOMO: The psychological aspect of the pursuit of a giant green candle. (Post 24/45)
(If you're interested in my previous posts, f o l l o w m e !)
Welcome to post 24.
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Last post we went down the rabbit hole of the absolute wild west of the OTC markets. The unregulated sub-pennies are the ones that destroy accounts, zero transparency and brutal bid-ask spreads came up.
Let's take a step away from the mechanics of the market, for a moment. So let's discuss the sole thing that does make you click the buy button at the unexpected and worst possible time.
Your own brain.
FOMO. Fear Of Missing Out. It's the No. 1 account killer in the penny stock market. Period.
This is how it works. We've all had to go through it. You are viewing a scanner. A randomly selected penny stock begins to roll up. 50 cents. 60 cents. You hesitate. You think it's a trap.
After that, the volume begins to flow. A huge and powerful green candlestick is printed on the chart. 85 cents.
In your mind you begin calculating. If I had purchased 5,000 shares just three minutes ago I'd be up big. You see others getting paid what you have the potential to earn. Well, you think you are at least. The stock cracks $1.00.
You can't take it anymore. The anguish of watching on the sidelines is worse than the fear of losing money. You believe that this stock will keep on rising to $3.00. You get panicky, you slap the ask and you do a market buy at $1.10.
Congratulations. You are now the exit liquidity.
When your order is placed, the stock freezes the second it is executed. The big green candle has a lousy red wick on top. The smart money, the traders that bought early and at $0.50, are selling their shares straight to your FOMO order.
The price drops back to $0.70. In the span of 40 seconds you have lost half of your account. You now have bags containing pennies, which are of no value.
If they've gone vertical, it's a stock that's a financial suicide is to chase. This action has already taken place. You missed it. Well, that's fine.
The most difficult of all the lessons in penny stocks is this: If you miss the initial set up, you walk away. Let it go. Do not chase. In the next session there will literally be another penny stock doing the same thing.
Avoid purchasing a vertical green line.
Let's meet up next post as such.
(Short recap: FOMO is the Fear Of Missing Out in this post we explained the psychology behind it.) We talked about the psychological need to chase the big green candles, and the fact that it almost always leads to a bagholding and why you need to learn how to turn your back when you don't catch the first move.