While panic selling is often the most cited way that newbie investors lose money, panic buying can be equally dangerous. In this article, we’re going to talk about a popular cryptocurrency trading term FOMO.
We’ll go over, what this strange acronym means as well as also help you to find ways to deal with it so that the FOMO doesn’t catch you. FOMO stands for the Fear Of Missing Out, and it’s much more powerful than you might think. However, there are a number of strategies that you can use to protect yourself.
What does fear of missing out in crypto mean
In cryptocurrency, FOMO is often used to describe the tendency of investors to panic and begin buying coins or tokens when they see that the price is going up. Many of them quickly learn that this is a mistake. Unfortunately, this lesson often comes after they have already lost a substantial amount of money.
Why is cryptocurrency FOMO bad
Investors who fall prey to FOMO let their emotions drive their investment decisions. This is almost always a bad idea, and it’s a good way to lose money. Just like becoming too attached to a project can blind you so that you miss the reality of its real price potential, FOMO can do the same. The fear of missing out is a powerful thing, and even experienced investors can find that they have to work hard to resist being emotional during trading.
Where does cryptocurrency FOMO come from
The fear of missing out is not exclusive to cryptocurrency by any means. People have been experiencing this for as long as investments have existed, and it’s honestly how many shady investment scams have duped so many people.
Many people are so bothered by the idea of what could be, that they are willing to make decisions, which they would otherwise never make. However, FOMO is particularly dangerous in crypto markets, because the volatility can quickly amplify your losses.
How about an example of FOMO in action
Jimmy heard a lot about a particular cryptocurrency token. All of the crypto media outlets have been talking about it, and social media is overflowing with investor optimism for this particular token to go to the moon. Buying activity on exchanges supports this, and the volume has been surging with the price going up every day. This asset has managed to shoot up to the top trading volume within a manner of days with all of this excitement.
Jimmy was hoping to get in at a more attractive price, but the price of the token just keeps going up. With everyone talking about the asset going to the moon soon, Jimmy becomes anxious, and he is worried that his limit orders will be never filled. The price of the token starts rocketing skyward, and he begins to fear that he will miss out on potential profit and that the tokens will be forever out of his price range, so he frantically tries to buy in anyway.
He purchases the tokens at a greatly inflated price, and soon the market begins to correct from this unusual activity. Everyone begins to sell in panic as the asset declines, and soon Jimmy has lost a substantial amount of his capital due to crypto FOMO. If he had been more patient, he could have purchased his tokens at a substantial discount and been in a much better position financially.
How to overcome the fear of missing out
If you want to stop yourself from being overcome by the cryptocurrency fear of missing out, then it’s important to step back and view the situation objectively. Perhaps take a second to zoom out and see the long-term charts for the project. Does the price of this asset look to be going straight up with no correction? You could buy into something, that’s ready to have the rug pulled out from under it.
Stand back and ask yourself if the asset is really worth the price it’s currently trading at. Popular financial advice that is often given is to be greedy when others are fearful and to be fearful when others are greedy. If the noise from investors about the project has reached deafening levels, then it’s time to be cautious.
It’s also important to set goals for yourself to prevent emotional decisions. Make sure that you plan an investment ahead of time based on its fundamentals to avoid FOMOing yourself into bad positions. Set limit order buys at reasonable levels and stick to them. If the price of your chosen asset begins moving away from your entry point, then wait for another appropriate entry rather than falling prey to FOMO and jeopardizing your capital.
Almost always there will be more opportunities in the future. This is especially true when tokens or coins make meteoric rises in short time frames. A correction is likely to follow soon, and you’ll be able to purchase more assets at a better price by controlling your emotions.
How to help someone who has cryptocurrency FOMO
If you have a friend who is experiencing cryptocurrency FOMO and you want to help him, then you’ll need to approach the situation carefully. People don’t like being told that they are wrong, and their wounded pride could cause them to ignore your warnings. Instead, try to present them purely with facts about the state of the market and what the real value of the asset should be. Or, you could at least try to convince them not to use their entire portfolio on this move.
In the end, people will need to be able to recognize FOMO for themselves to fight back against, and there may be not much you can do. Sometimes hard lessons need to be learned on your own, but you can try to steer a friend that has gone astray in the right direction. Try not to be overly pushy in your approach and try to have a real conversation about the crypto asset in question instead.