Fear, greed and FOMO
What you learn in 3 minutesThis lesson looks at three states that push people to break their own written rules: fear, greed and FOMO. The word FOMO is short for fear of missing out, and on a platform it shows up as an order placed after the move has already happened. The cost of that is measurable: on AUD/USD, one pip on one standard lot is 10 units of the quote currency, which at a rate near 0.6640 is about A$6.64 per pip, so a 20-pip entry difference is about A$132.80 on one standard lot.
The same setup taken twice, with a 20-pip difference
| Step | Amount | Note |
|---|---|---|
| Planned entry | 0.6640 | the level written in the plan before the session started |
| Chased entry | 0.6660 | the price after the move, taken in a hurry |
| Distance between the two entries | 20 pips | 0.6660 minus 0.6640, expressed in pips |
| Value of one pip on one standard lot | about A$6.64 | 10 units of the quote currency at a rate near 0.6640 |
| Extra cost of the chased entry on one standard lot | about A$132.80 | 20 pips multiplied by about A$6.64 per pip |
Brokers vary in how they round the pip value, in the spread they quote, and in any commission or swap charged on top. The figure above is an illustration of the arithmetic, not a quote from any broker.
The mistake people make here
The common mistake is to treat the chased entry as the same trade as the planned one, because the setup looks identical on the chart. It is not the same trade: the entry, the stop distance and the position size all change, and the extra A$132.80 in the example is money that the plan never agreed to risk. Instead, write the entry level, the stop level and the maximum loss in A$ before the session, and if price has already moved past the entry, treat the setup as gone. A setup that has been missed costs nothing; a setup that has been chased costs the difference in pips multiplied by the pip value.Check yourself
AUD/USD is near 0.6640 and one standard lot pays about A$6.64 per pip. A planned entry at 0.6640 is missed and the entry is taken at 0.6655 instead. What is the extra cost on one standard lot?
The difference is 0.6655 minus 0.6640, which is 15 pips. 15 pips multiplied by about A$6.64 per pip is about A$99.60 on one standard lot.
The same 15-pip chase is taken on 0.20 lots instead of one standard lot. What is the extra cost?
0.20 lots is one fifth of a standard lot, so the pip value is about A$1.33 per pip. 15 pips multiplied by about A$1.33 is about A$19.95.