The phrase “fear of missing out” (FOMO) is an abbreviation that refers to the sensation of worry or uneasiness that one gets when other people are participating in a great or unique event while they are missing out on it themselves. The problem has been amplified with the introduction of social media, which makes it simple for us to understand what others are going through at any given time.
What exactly does it imply while trading to have FOMO?
In the field of financial trading, especially when you talk about trading cryptocurrency, the term “fear of missing out” (FOMO) refers to the anxiety that a trader or investor has when they believe they will be unable to take advantage of potentially profitable trading or investing opportunity. The more the market behaves irrationally and continues to rise dramatically over a very short period, the more the fear of missing out (or FOMO) that traders have.
- Context of Financial Markets
In the context of financial markets, the fear of missing out (FOMO) refers to a circumstance in which a trader is concerned that they will pass up a significant chance to profit from the market. Fear of missing out (FOMO) is a prevalent problem in the world of financial trading, and it may impact anybody. Fear of missing out can affect novice traders who use retail trading accounts, as well as experienced traders who work for large organizations.
When you see a sudden increase in the price of a crypto stock and think to yourself, you are experiencing the sensation of having missed out on a transaction. In essence, the desire to participate in the price movement blurs your judgment, making it impossible to do the essential study of the stock before executing a trade. This is because the desire to participate in the price movement clouds your judgment.
The inherent propensity that we all have, which is a kind of cognitive bias, is to assume that what is happening today will persist into the near future. Cryptocurrency trading out of fear of missing out (FOMO) arises from this natural tendency. Every second counts in the world of financial trading since the market is always changing and anything may take place at any time.
- Era of social media
It’s not uncommon for people to have FOMO in the era of social media, when we have unparalleled access to the lives of others. To put it another way, it arises from the belief that other traders are more successful than oneself, which may lead to unrealistic expectations and a lack of patience.
FOMO is generally fuelled by a strong desire to be a part of something new and exciting. Trading strategies might be neglected, and risk thresholds can be exceeded if they are not monitored. FOMO may be fueled by a variety of emotions in trading, such as egotism, worry, exhilaration, envy, anxiousness, and panic. These feelings are all common in cryptocurrency trading.
The Traits of a Trader Driven by FOMO
Fear of missing out is an adversary that all traders face daily. This fear effects the decision-making as traders on many different levels, including entering trades too quickly without confirmation and pursuing transactions that have already passed.
FOMO is something that can only be mastered in trading if one has a firm grasp on their trading psyche. But not all traders have their trading psyche completely mastered. Many people still give in to their fears of missing out, and such people often exhibit the following qualities!
- Greed
A trader who suffers from FOMO wants everything now and wants it all. If this is how you feel when you trade, then fear of missing out (FOMO) is certainly something you struggle with. Instead of concentrating on how to successfully carry out your deals, you are preoccupied with calculating how much profit you can earn from each one.
- Pack mentality
A trader who suffers from FOMO is one who often engages in activities only because they are being carried out by other people, regardless of whether they comprehend the reasons for such activities. When it comes to crypto trading, following the herd may lead to foolish decisions that can have devastating results.
- Insecurity
FOMO traders often exhibit a lack of patience. They are scared that the price could get away from them, so they do not want to wait for the setup; rather, they simply want to jump into a trade as soon as possible.
- A great deal of anticipation
Simply put, some traders have very high expectations. They trade impulsively because they have the goal of doubling their money within a few months.
- Insufficient self-assurance
After a string of unsuccessful transactions, some investors may attempt to make up lost ground by trading cryptocurrency more often. They engage in arbitrary transactions only for the purpose of generating rapid gains and recouping their previous losses. Sadly, they put themselves in a position to suffer even more losses.
- Uncertainty
Some traders are just terrible at making judgments yet making sound choices is essential to successful trading. A trader is required to make a variety of decisions on a regular basis, including whether to initiate a trade, the size of the position, the location of the stop loss and profit objective, and many more. Those who struggle to make choices are more likely to suffer from FOMO.
- No trading plans
Most traders who act on fear of missing out (FOMO) do not have trading strategies. They deal with one another in whichever manner they want. When the price is trending in a certain way, people tend to believe that it will continue trending in that manner indefinitely.
- No consideration of the long term
Traders that are motivated by fear of missing out do not often approach the market with a long-term perspective. If they do, they will realize that there are thousands of fresh deals waiting for them, and as a result, they won’t put as much weight on any one transaction.
- Identifying a potential win
A trader who is susceptible to FOMO is one who tends to overestimate their ability to predict future market events. There is a widespread misconception that since he or she is now engaged in a transaction, the crypto market will continue to move in the same way.
- Analytical paralysis
Some traders who are plagued by fear of missing out (FOMO) genuinely spot the trade setups early enough, but they get frozen in their research to the point where they cannot pull the trigger. They attempt to follow the trade even if it has moved from the correct entry level until the price ultimately begins soaring in the direction that was anticipated.
- No preparedness
People that trade because they are afraid of missing out don’t often consider how to minimize the risks associated with trading. Much of the time, by the time they join the trade, the price has already stretched to the point where it is impossible to select the appropriate location to put a stop loss order.
The Causes of Fear of Missing Out (FOMO)
Even though fear of missing out (FOMO) is a sensation that may be experienced by traders, there are many other things that might set off this emotion in traders. The following is an example of one of those factors:
- Increased turbulence in the market
When there is an increase in market volatility, which may be characterized by crypto price swings in either direction, the likelihood that a trader would experience FOMO increases. When a trader observes a significant price movement in one way, they may be tempted to make a move in the other direction to capitalize on the trend.
- Headlines
A trader may feel compelled to enter the market in response to certain news to ensure that they do not lose out on the possibility of making a profit.
- Receiving a tithe or offering
A trader can obtain a tip that a specific stock is poised to make a large move, and out of the fear of losing out, he would instantly purchase the stock without any additional study since he doesn’t want to lose out on the opportunity.
- Social media economic platforms
The topic of traders’ conversations may be found on a variety of social media sites. You may observe them on several platforms, including Twitter, Reddit, Facebook, Instagram, and others. When it seems as if everyone else is participating in a certain successful deal, one could experience feelings of exclusion.
- A series of victories in a row
When it comes to your own performance, a run of consecutive victories might get you quite enthusiastic. You can start to believe that nothing can stop you and start cryptocurrency trading erratically. There’s a good chance that the market is now in a trend, in which case practically every transaction will result in a profit. After some time, when the market conditions shift, the unavoidable losses may eventually become disastrous.
- A sequence of poor results
A string of losses might make you reluctant to enter trades even when the optimal conditions for doing so present themselves. Later, when you observe that the price is heading in the predicted direction, you may be tempted to pursue the trade out of worry that you will lose out on the opportunity to profit from your one and only accurate forecast in recent times. In addition, you can be so anxious to get back what you’ve lost that you wind up placing yourself in a precarious scenario that puts you at risk of suffering a devastating loss.
How to Get Past the Fear of Missing Out?
Even though fear of missing out (FOMO) might make an investor desire to buy an asset in which everyone else seems to be making money, patterns in cryptocurrency market pricing imply that investors should avoid doing so.
An investor has a considerably greater chance of making money if they buy cheap and sell high, and they also have a better chance of making money on transactions that are less popular. So, how can traders keep themselves from succumbing to FOMO and making poor trades? The following are some recommendations for overcoming the fear of missing out (FOMO) while investing in the stock market.
- Engage in Research
Conduct study on a touted investment’s underlying fundamentals, price patterns, and forecast before purchasing the asset. Do not invest in a security the price movement of which is not supported by the underlying company.
- Remain Dedicated to Your Trading Strategy
Every investor must have a trading strategy that is tailored to their investment tenets, including their level of comfort with risk, their level of diversification, and their overall financial goals. Ensure that these guidelines are being followed before making an investment in a FOMO stock.
- Prepare Yourself to Fail
If a potential investor is really interested in participating in a FOMO trade, they should maintain a modest position size and only invest the amount of money that they can afford to lose.
- Sit tight
The fear of missing out (FOMO) might induce investors to feel the urgent need to execute cryptocurrency trading right away. If this is the case, the investor should try to resist the impulse to take a position that might not be in their best interest by waiting until the following day or the next week and performing research.
After waiting and doing study, they should open a job only if they are certain that they wish to do so. However, it is quite probable that the temptation to acquire the overvalued stock was an emotional one, and it is also likely that the emotion will have subsided by this point.
- Follow the Trades
Investors who trade based on fear of missing out (FOMO) should record all their deals in an Excel document so that they can compare the results of trades made based on research and fundamentals with those made based on FOMO. Reviewing previous deals may both help formulate a strategy for future trades and prevent “fear of missing out” trading.
The Bottom Line
The experience of having FOMO is inevitable. However, utilizing fear of missing out (FOMO) as a driver for cryptocurrency investment choices often results in impulsive transactions that aren’t supported by sufficient research and have the potential to incur big losses. Fear of missing out (FOMO) is a psychological phenomenon that leads investors to make poor investing decisions by purchasing stocks when their prices are already at or near their all-time highs.
