FOMO is one of the many phenomena that investors and traders of all kinds are regularly confronted with, whether it’s bitcoin and other crypto-currencies, as much as in more traditional investing. In a few years, however, this term has taken on its full meaning with the rise of cryptos and the massive arrival of a new wave of investors. Let’s take a look at a syndrome that is as well known as it is poorly understood.
What is FOMO?
FOMO is the acronym for “Fear of Missing Out”, i.e. the fear, the anxiety experienced at the idea of missing an opportunity, of missing out on something.
This phenomenon, which was identified many years ago, owes its real development to the advent of the Internet and social networks. Access to information has increased tenfold, offering us the possibility to know everything at any time.
This is obviously not without consequences: our mind has difficulties to face all the solicitations it is confronted with. Our ability to judge is impaired and our frustration is constantly tested.
If many aspects of our lives are affected by FOMO today, it makes particular sense when it comes to investing and trading crypto-currencies. Who has never, for example, watched the price of an altcoin, waited before investing, seen a 10% rise and regretted the missed opportunity?
There are many reasons for this strong link between FOMO and the cryptocurrency market:
- The price of crypto-currencies has exploded in recent years.
- The ecosystem is growing rapidly and new trends are constantly emerging.
- Success stories and other record-breaking gains are commonplace on the Internet.
- Many inexperienced investors are discovering trading through cryptocurrencies.
- The first gateway to the industry is the social networks and their influencers.
Thus, overwhelmed with information and ever-increasing solicitations, cryptocurrency enthusiasts are constantly in regret and feel they are missing out on a golden opportunity, an investment or a potentially lucrative trade.
A phenomenon that can hide many dangers…
Why protect yourself from FOMO?
To succumb to FOMO is to put yourself in danger by basing your investments on your feelings, on your temptations. It means abandoning all thought and strategy in favor of primary emotions that are often irrational and misleading. It is to act by relying on those phrases that are constantly echoing in your head: “I could have made more”, “I knew it would continue to rise”, “this time I feel good”.
These emotions are the worst enemies of the investor and the trader. They prevent you from taking the minimum precautions to ensure that your investment has a positive expectation of profit.
There are many examples to illustrate this type of behavior and its consequences:
- While you have set an entry zone on a cryptocurrency, its price keeps rising. After a 50% increase, you end up investing for fear of missing the opportunity of a lifetime. Unfortunately, this cryptocurrency drops and you sell at a loss.
- After a few bad trades, you invest all the rest of your savings in a project promoted by your favorite influencer without doing your own research. Unfortunately, it was a scam and you lose everything.
- After hearing about the incredible gains on the new trend, Play to Earn, you decide to invest in the project of the moment. Unfortunately, the project was grossly overvalued and you lost a lot of money.
As you can see, cryptocurrency enthusiasts most often succumb to FOMO in response to a mass effect. Beyond the fact that the mass… is most often a loser, it is this crowd psychology that causes irrational market movements, often leading to speculative bubbles.
It is quite simple: we observe the way others act to find the right behavior to adopt in a given situation. Some “influencers” have understood this and use these notions to generate a feeling of FOMO among their communities.
We are therefore generally led to succumb to FOMO during the final phase of a bullish movement, i.e. when :
- The rise becomes irrational.
- The excitement is at its peak.
- Forward-looking investors take profits.
- The risk/return ratio is the worst.
Of course, it is possible to take profits after succumbing to FOMO. However, unless you improve your trading habits, it’s like betting on a potential short-term gain against certain long-term losses.
How to deal with FOMO?
Learning to overcome FOMO is usually a painful process and requires experience. But 10 common sense principles can help you slip through the cracks:
1. Have a plan
This is probably the principle that encompasses all the others: don’t try to get to the finish line without going through the starting gate. And in investing and trading, square one is your strategy.
Go for a plan that you feel comfortable with, that you can adjust and stick to. Don’t give in to your primal instincts, set limits on allowable losses and profits and stick to them.
2. Cultivate your risk management
Build a balanced portfolio, devote a small part of your portfolio to risky projects and limit leverage.
Remember to take profits and don’t be greedier than your action plan allows.
3. Do your own research (DYOR)
Learn about the project before you invest, understand the complexity of this market before it takes it upon itself to force it on you.
Don’t believe everything you read (even here): everyone who inspires you has been wrong before, will be wrong again, and may be wrong for you.
4. Focus on the “Dollar Cost Average” (DCA)
DCA is an investment strategy that involves investing a fixed amount of money in a cryptocurrency at regular intervals. Favor this type of strategy to smooth out your entry price and reduce the impact of volatility on your overall investment.
5. Be patient
Don’t rush, conduct your research in a timely manner and always give yourself time to think before you act.
Give the market time to allow you to achieve your goals. Your buy order wasn’t triggered? It doesn’t matter, there will always be other opportunities that check all the boxes.
6. Take a step back
Take a step back from your investments, price movements and the ups and downs of your portfolio. Lack of perspective is one of the main reasons you’ll make rash decisions such as giving in to FOMO.
7. Confront your certainties
Deconstruct the mental models fed by social networks that distort your appreciation of reality. Despite appearances, not everyone comes out a winner when investing in cryptocurrencies. Many lose, make mistakes, experience failures and never talk about it.
8. Learn to accept
Learn to accept your failures, the lack of time to dedicate to your research, the missed opportunities… You are not and will never be in all the right moves.
9. Don’t remain isolated
Surround yourself with people who feel the same way as you do, confront your opinions and share your difficulties in order to overcome them together.
Be careful, however, to respect the other principles so as not to give in to a group effect that could be harmful.
10. Follow the trend intelligently
It may seem paradoxical, but if you have followed the previous advice, the phases of collective FOMO represent, for the informed investor, a period synonymous with opportunity. Learn to take advantage of it while maintaining your rigor.
As you can see, succumbing to FOMO will make you make the worst decisions. Fortunately, respecting a few principles should allow you to face the market with more serenity. In the meantime, you can also turn to stablecoins and their many strengths.