The majority of traders experience FOMO near the peak of a bull run, according to trading psychology. Prices are rising and market sentiment is favorable at this point. You believe that the uptrend will continue and that nothing can go wrong, so even though the price is high, you will make more money if you buy now. In this article, we learn about FOMO.
Summary:
- What is FOMO?
- FOMO IN CRYPTO
- How to avoid FOMO?
What is FOMO?
FOMO is an acronym for “fear of missing out.” It’s a common anxiety response when other people are having fun or talking about having fun. During the years 2020 and 2021, when many cryptocurrency prices were soaring, many investors in the cryptocurrency industry experienced FOMO. People’s frequent posts on social media praising their incredible investment returns from purchasing the appropriate cryptocurrency or digital asset (such as NFTs) at the appropriate time amplified these feelings.
FOMO IN CRYPTO
The human brain is wired for a social experience. FOMO is a healthy feeling that can encourage us to seek out new friends and try new things when used in moderation.
However, FOMO can manifest itself in a variety of negative contexts. One example is investing. Markets are dominated by two fundamental human emotions for brief intervals: greed and fear
Emotional decisions can be influenced by frequent observation of others making a quick buck, particularly when the news is shared among peers or on social media. Investing in a popular cryptocurrency project or another high-growth investment without fully comprehending the risks may be motivated by FOMO for some investors. In any case, trends are normal in the venture world. FOMO, which is caused by collective greed, can change from a fear of missing out to a fear of losing hard-earned money for something that is going up in price quickly.
This is shown by the market turmoil that has occurred thus far in 2022. Many of the crypto investments that were once very popular have lost support from their early supporters, leaving those who were late to the party to bear the brunt of the price drop.
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How to avoid FOMO?
In the short term, markets (stocks and cryptocurrencies) are influenced by fear and greed, and attempting to chase the current emotion can result in disaster. However, it is easier said than done to defeat our fundamental human desires. When the next bull market arrives, here are four exercises to help you avoid FOMO when investing.
- Keep in mind that investing is about the long term
Getting educated about a matter is often the best cure for FOMO. So here’s an important truism from one investor to another: Investing requires patiently taking the long view.
People who are looking to make a quick buck frequently stoke FOMO. But traders make decisions about short-term investments, which are very different from making passive investments in assets for years to come. When deciding whether to invest in a cryptocurrency or another trendy stock that is getting a lot of attention, think about whether you would like to own it for a long time or if buying it is just an emotional reaction at the time.
It doesn’t hurt to test the waters first if you decide that the investment is worth some of your savings. Dollar-cost averaging a small amount of your money into an investment, perhaps on a monthly or quarterly a good way to get started if a cryptocurrency or stock is soaring as a result of other investors’ FOMO.
- Goals should come first, not just making money
It doesn’t make much sense to have money just to have money. Where are the funds going? That is to say, what is your strategy? Saving and investing serve a purpose, such as preparing for a significant purchase (such as a car or home). to making preparations for retirement (or a time in life when work is optional).
Do a mental walkthrough of the goal of the money-making scheme before investing any money in it. Or, even better, reread your goals after writing them down. A boom-or-bust investment could result from FOMO. Imagine a scenario in which a significant portion of your investment loses value, and you might decide that a very small portion of your money is appropriate for this decision. Then, ask yourself if this is a good result for your goal. Take a hard pass if you’re saving for a shorter-term objective.
A significant price decline may be acceptable if the objective is to achieve it over time. In fact, with any investment, you can anticipate this occurring frequently. Still, one important step in risk management and avoiding FOMO-driven decision-making is actively considering investments going wrong and whether that matches your objective.
- Create a portfolio, not a list of helpful hints.
If you have many years or even decades to go before you need the money, investing a small portion of your investments in higher-risk but potentially higher-return assets may make sense. However, resist the urge to compile a portfolio of “hot tips” you acquire from peers om social media.
Instead, establish a long-term thesis-based portfolio of high-quality investments. Instead of focusing on fads that last a short time, think about growing, profitable businesses that benefit from secular trends. Consider adding some more speculative growth investments that can construct a long-term business model after you have assembled a core group of holdings.
- Everyone has a plan, and it rarely has your best interests in mind
One more way to avoid FOMO is as follows: Before making a high-risk investment, consider where the idea for the investment came from.
When in doubt, combat FOMO by detaching yourself from social media and other virtual interactions, where it can be more challenging to determine the intentions of others. Consider a potential investment thoroughly, discuss it with family, friends, or another trusted individual, and try to make an objective decision rather than an emotional one. Don’t let someone else’s ecstasy sway you into doing things you might later regret because ultimately, you know your financial situation the best.
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The Bottom Line
Forms of FOMO have been a part of human existence long before cryptocurrency was invented. Due to the possibility of losing an entire investment, cryptocurrency can be detrimental. Investors can help prevent the dangers and influence of cryptocurrency FOMO by adhering to guidance with discipline.
