Fear, greed and FOMO
What you learn in 3 minutesThis lesson shows you the three states in which people break their own trading rules: fear, greed and FOMO. It uses one EUR/USD setup taken twice, once by plan and once in a chase, and adds up the difference in shillings so you can see what the second version costs.
One setup, two entries: a 4,340 KSh difference
| Step | Amount | Note |
|---|---|---|
| Planned entry | 1.0850 | The level marked before the session, where the setup was written down. |
| Chased entry | 1.0885 | The price after a 35 pip move, when the reader decides to join late. |
| Pip value on one standard lot | KSh 1,240 | 100,000 x 0.0001 = 10 units of the quote currency; converted at about KSh 124 per unit. This rate varies between brokers and by the day. |
| Planned stop distance | 30 pips | Placed below the setup level, as written in the plan. |
| Chased stop distance | 65 pips | The same stop level, now 65 pips away because the entry is 35 pips higher. |
| Planned risk on one standard lot | KSh 37,200 | 30 pips x KSh 1,240. |
| Chased risk on one standard lot | KSh 80,600 | 65 pips x KSh 1,240. |
| Extra money at risk | KSh 43,400 | KSh 80,600 minus KSh 37,200. |
| Planned target distance | 60 pips | Twice the stop, giving a 2 to 1 reward-to-risk plan. |
| Chased target distance | 25 pips | The same target level, now only 25 pips from the chased entry. |
| Planned reward if the target is reached | KSh 74,400 | 60 pips x KSh 1,240. |
| Chased reward if the target is reached | KSh 31,000 | 25 pips x KSh 1,240. |
| Difference in reward | KSh 43,400 | KSh 74,400 minus KSh 31,000. The chased trade risks KSh 43,400 more to earn KSh 43,400 less. |
The broker may round the pip value, add a spread, charge a commission, or quote a different conversion rate for the shilling. Those charges vary between brokers and are not included above.
The mistake people make here
The common mistake is to treat a late entry as the same trade as the planned one, because the chart looks the same. It is not the same trade: the stop is wider, the target is nearer, and the money at risk is larger. Fear makes people close a planned trade too early, greed makes them add to a winner past their own limit, and FOMO makes them enter after the move. Instead, write the entry, stop and target before the session, and if the price has already passed the entry, let that one go and wait for the next setup.Check yourself
A planned entry is at 1.0850 with a 25 pip stop on one standard lot. The reader chases at 1.0875 and keeps the same stop level. How much extra is at risk, in KSh, if one pip is KSh 1,240?
The chased entry is 25 pips higher, so the stop distance grows from 25 pips to 50 pips. The chased risk is 50 x KSh 1,240 = KSh 62,000. The planned risk was 25 x KSh 1,240 = KSh 31,000. The extra at risk is KSh 62,000 minus KSh 31,000 = KSh 31,000.
On one standard lot of EUR/USD, what is one pip worth in units of the quote currency, and why?
One pip is 0.0001, and a standard lot is 100,000 units, so 100,000 x 0.0001 = 10 units of the quote currency. Converting to shillings depends on the rate at the time, which varies.