Fear Of Missing Out (FOMO)
By Cliff Clark
Every morning in the trading room somebody invariably posts the FOMO stock of the day with comments indicating they think they are about to make their millions. You know the stocks I'm talking about. Some of the ones we've heard often recently are KODK, NKLA, ZM, BYND, ROKU, TSLA and any number of pharmaceutical stocks.
The problem with these stocks is, where do you jump on board? Many traders will just buy them blindly hoping they will keep racing higher. They don't worry about a stop loss because they know it will keep rising higher. This will work for a time. But when that time is up the buyers that bought at or near the top are the ones caught holding as it drops like a stone. Many traders continue to hold as it continues to decline, hoping and praying it will reverse course. Unfortunately for many the pain becomes too great and they end up selling for a large loss. Of course once all these weak hands have been cleared out the stock resumes it's upward trend and most likely trapping a bunch of traders that thought it was a great time to short.
So what are we to do? Do we have to avoid these stocks altogether? Not necessarily. Most of them make great stocks for intra day traders. These are the stocks where we make a considerable amount of our profits each year. In order to do this however you need to have a plan for entering and exiting them. You have to have a thorough understanding of gaps. When a FOMO stock is gapping up after four consecutive days is it a good time to short? Maybe, maybe not, it depends on the market action after the open. In order to play these stocks you need to have strategies in your trading plan that have been tested and you know are profitable. Without that you should stay away.
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
