What Is FOMO in Crypto?
While FOMO can be used in any social or business circumstance, FOMO in the crypto industry specifically refers to an intense feeling that you are missing out on the next big thing in the crypto space, and subsequently the opportunity to make large profits. FOMO is typically referred to as a reason behind someone’s emotional decision to buy or sell crypto based on unverified information.
For example, many new traders end up buying a crypto asset at its all-time-high price, because they see it doing well and don’t want to miss out on that profit. This is especially common when there’s a lot of social media or online speculation about further price movements. Similarly, many traders will refuse to sell assets at their peak price due to FOMO; in this circumstance, that trader is afraid of losing out on future monetary gain based on potential price movements. In both cases, traders lose profit, because they end up jumping in to buy at the highest price or selling at a significantly lower price.
Psychology Behind FOMO
According to trading psychology, most traders experience FOMO near the top of a bull run. At this point, the market sentiment is positive, and prices are rising. You feel like the uptrend will continue and nothing can go wrong, so you’ll make more money if you buy now, even if the price is high. If you are FOMO-driven then you might experience:
- Anxiety and constant obsession with your open position
- An extreme need to follow social media news and trends
- Making investment decisions because of popularity or massive price movement
However, FOMO can also lead to negative consequences. It is a major psychological tool employed in pump-and-dump schemes, where malicious actors convince investors they are missing out on massive profits and get them to invest. An example is the rug pull scheme of SQUID Coin that gained traction based on social media hype and FOMO from investors, but then plummeted in value.
How To Deal with FOMO in Crypto
Here are some tips to help you deal with FOMO and avoid risky trading decisions:
- Keep a trading journal that records every investment/trading move you make. Record your strategy, risk management plan, and emotions, so you can physically see the results of strategic trading decisions versus trades made out of FOMO.
- Have a trading plan and stick to it. That way, you can avoid emotional trading.
- Create a detailed risk management strategy. This will help you clearly understand when to take profit or cut your loss.
- Do your own research before making a trading decision. Don’t base your trading strategy on social media hype, and don’t rely on influencers. Follow news from trusted new media and verify information from the source.