FOMO and Chasing Price: A Decision Protocol Before Every Entry
Calculate what chasing does to your reward-to-risk and position size, and use a written five-step protocol before every entry.
What you will learn
- Why chasing price is more expensive than it feels, shown in numbers.
- How to set a maximum chase distance based on volatility.
- A five-step protocol to complete before every entry.
- How to treat a missed trade without emotional damage.
Explanation
FOMO (fear of missing out) was introduced in the beginner trading course. Here we focus on its most common action: chasing, meaning entering after price has already moved away from your planned entry, because you fear missing the rest of the move.
Why chasing is expensive
A setup has three levels: entry, stop and target. The stop belongs to the market structure, for example below a swing low. The target belongs to structure too, for example the next resistance. When you enter later, neither level moves, but your entry does. That has two effects:
- Reward-to-risk falls: the distance to the stop grows and the distance to the target shrinks.
- Position size falls: with a fixed euro risk, a larger stop distance means fewer units. You get less of the move you were chasing.
If you instead keep the original size, your euro risk rises above your rule. Either way, the trade is worse than the one you planned.
Maximum chase distance
A practical rule is to define how far beyond the planned entry you may still enter, expressed as a fraction of the ATR (Average True Range, the average daily or bar range, covered in the technical analysis course). Example rule: "No entry more than 0.25 ATR beyond the planned entry price." If price is already further away, the setup is cancelled or you wait for a new one.
The five-step entry protocol
- Setup check: Is this a setup from my written plan? Name it.
- Levels: Write entry, stop and target. Calculate reward-to-risk. Is it at or above my minimum?
- Distance check: Is the current price within my maximum chase distance?
- Size: Calculate position size from my euro risk and the stop distance.
- State check: Stress rating 1–10 (lesson 1). Would I take this trade if I had not watched the last five candles?
Any "no" means no trade. The protocol takes about two minutes; this short delay itself reduces impulsive entries.
Worked example
Hypothetical example: account €10,000, risk 1% = €100 per trade. Planned long entry at €100.00, stop €96.00, target €112.00. Minimum reward-to-risk in the plan: 2.0. Daily ATR: €4.00, so the maximum chase distance is 0.25 × €4.00 = €1.00. Fees, spreads and taxes are excluded.
| Planned entry | Chased entry | |
|---|---|---|
| Entry | €100.00 | €104.00 |
| Risk per share (entry − stop) | €100 − €96 = €4.00 | €104 − €96 = €8.00 |
| Reward per share (target − entry) | €112 − €100 = €12.00 | €112 − €104 = €8.00 |
| Reward-to-risk | €12 ÷ €4 = 3.0 | €8 ÷ €8 = 1.0 |
| Position size (€100 ÷ risk per share) | 25 shares | 12.5 → 12 shares |
| Profit at target | 25 × €12 = €300 | 12 × €8 = €96 |
Protocol result: step 2 fails (1.0 is below the 2.0 minimum) and step 3 fails (price is €4.00 beyond entry, four times the €1.00 limit). No trade. The chased version risks €96 (12 × €8) for a possible €96, while the planned version risks €100 for a possible €300.
If the trader had kept 25 shares at €104, the risk would be 25 × €8 = €200, twice the rule.
Handling a missed trade
Record missed trades in the journal under "missed – rules worked". Over time, also note how many chased setups would have failed. This turns the missed move into data rather than regret. There will always be another setup; there is not always another account.
Common mistake
Practice activity
On paper: risk €150 per trade. Planned entry €50.00, stop €48.00, target €60.00. Price is now €52.50. Calculate reward-to-risk and position size for both entries. ATR is €2.00 and your maximum chase distance is 0.25 ATR. Decide whether to enter.
Show solution
Planned: risk €2.00, reward €10.00, reward-to-risk 5.0, size €150 ÷ €2.00 = 75 shares.
Chased: risk €52.50 − €48.00 = €4.50, reward €60.00 − €52.50 = €7.50, reward-to-risk ≈ 1.67, size €150 ÷ €4.50 ≈ 33.3 → 33 shares.
Maximum chase distance = 0.25 × €2.00 = €0.50. Price is €2.50 beyond entry, so step 3 fails. No trade.
Limitations: stops can be skipped by gaps and slippage, so the real loss can be larger than the planned €150 in both cases.
Key takeaways
- Chasing moves your entry while stop and target stay fixed, so reward-to-risk and size both fall.
- Keeping the original size after chasing breaks your risk rule.
- Define a maximum chase distance, for example 0.25 ATR.
- Use the five-step protocol before every entry; any "no" means no trade.
Next step
The next lesson deals with tilt and revenge trading: how to spot the early warning signs and run a stop routine before the damage grows.
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