FOMO is a thing that almost all traders meet when trading in the market. What is FOMO? Why is it so dangerous? The causes and how to overcome it? I will answer these questions in this article.
Bitcoin’s 7 crazy days
On December 16, 2017, when the price of Bitcoin (BTC) was at $19,500/BTC, I posted this status on my Facebook.
This Caption can be understood as Bitcoin is creating Fomo. Either sell out and leave the market or die.
On December 19, 2017, Bitcoin price dropped to $17,000/BTC. The crowd was still cheering and buying frantically.
On the morning of December 21, the earthquake of BTC took place. The sharks began to sell and the price dropped like never before. Fear covered the Coin market. Everything happened at breakneck speed from $17,000 – $15,000 – $13000… Now the crowd started to panic and turned to sell BTC. All ran away, which made the BTC drop to nearly $10,000.
After the thought that everything was broken, the bottom-fishing money flow appeared. It pulled the BTC price soar to $15,000.
7 days with 2 times of FOMO, from $19,000 BTC price plummeted to nearly $10,000 and then rose back to $15,000. Crowds are like slaughtered pigs, led by the market to buy high and sell low. After all, they left the market empty-handed.
Until now, this is still considered one of the most expensive Fomo lessons in the Crypto market. You can review it on Tradingview of the last days of 2017.
Ok! Now we come to today’s article. The market will always create Fomo sentiment. It will always be the traders who pay to experience and understand the concept of that negative sentiment. If you haven’t lost money yet, here’s an article that will save you hundreds or thousands of dollars.
What is FOMO?
FOMO is an acronym for Fear Of Missing Out, which is understood as a psychological syndrome of fear of losing opportunities.
Fomo psychology in trading means traders always have a feeling of fear that they will miss trading opportunities.
For example, you see people rushing to buy gold. Experts and news simultaneously predict the gold price will go higher. You are afraid that the more you wait, the more the price increases. So you follow the crowd to buy gold (like the gold Fomo story below).
Or like you are waiting to buy Bitcoin. You feel restless, worried that the price will not return to the Buy zone. As soon as the price pops up, you are afraid of losing the opportunity and immediately jump into BUY trades. You would ignore all previous plans and BUY as quickly as possible.
In short, Fomo is a fear of missing opportunity made up by you. You always feel it slip out of your hands. The more you fear, the more you will want to act.
Most traders when participating in any market (Forex, Crypto, stock…) at least experience Fomo once and lose money. So if you’ve been through Fomo, don’t be shy because everyone has been like that. HAHAA!!!!!
The Gold Fomo story
This is one of the super classic lessons about the gold Fomo. I will try to use pictures and explanations for you to understand. Gold price from July 2020 to August 2020.
(1) When gold rallied from 1800 to 1950 (beyond the peak of 2011), Fomo sentiment started to be activated.
(2) Media, experts, international news continuously reported that Gold would surpass $2,000 and increase to $3,000 within the next year. Or like the economic crisis caused by Covid 19 would bring gold to $3,000 in the future… Lots of good news supported a bullish scenario for gold. The crowd started buying gold. Even newbies and amateurs also came to the market to trade Gold.
(3) What happened next? Gold plummeted sharply for 3 days in a row (from $2,075 to $1,910). The crowd was panicking. They changed from BUY to SELL positions as quickly as possible. Once again, the Fomo SELL sentiment took place and the market continued to lead traders.
(4) What was the result? After strongly stepping on the gold price in the 186x area to pull the panic to the extreme, large cash flow started to rush in, pulling the market back up to the $2,000 mark. Gold rose again like “there has never been a breakup”.
What about traders? After 2 strong slaps of the market, perhaps they have come to their senses. But the money in their accounts has been long gone.
Why is Fomo in trading dangerous?
Fomo entails fear of losing money
“The market is a device for transferring money from the impatient to the patient. – Warren Buffett.”
The market that you and I know has zero-sum. It doesn’t print money. Money goes from one person to another. The more impatient you are, the more you want to act. So when you have made a decision, the probability that you make a mistake is extremely high.
Then Fear of losing an opportunity will lead to action => Rushing action will lead to mistakes => When you’re wrong, you’ll be afraid of losing money => Fear of losing money so you don’t dare to cut your loss => Your account will have nothing left.
It will be like a loop over and over. If you don’t realize it soon enough, the price you have to pay is enormous.
The nature of the market
The market nature is to create a Fomo to pull the crowd in, then reverse and “take all the money” to Mr. Market’s pocket.
Let me give you a view of some waves and phases where the market creates FOMO by pushing the price up quickly and sharply.
The first wave is in the early of 2018 from Coin ETH. The price rose rapidly and strongly from $700 to nearly $1,400 to create FOMO, then plummeted. Most of the traders participating in the market were stuck in line and swing at the top.
The next wave is Gold in 2011. The market also pulled the price up quickly and strongly, leading to the FOMO. Then it created a peak distribution followed by a sharp bearish reversal.
General scenario: Pulling the price up quickly and strongly, spreading Fomo sentiment throughout the market. When the traders’ money flow ” enter, the price reverses sharply then traders lose money.
Now you know, the market will always create Fomo under such a scenario. It activates your greed and also your fear of missing out. And when you jump into the game, you will always be behind and being led by the market.
Causes of Fomo
Do you plan to trade Gold or Coin? Do you plan to buy stocks in a good price zone? When the crowd is looking in a direction, chances are you will throw all those plans and look in their direction too.
Believe me. When you enter this market, you will see it clearly. The crowd navigates you. They constantly post technical analysis, good news to back their decisions.
Crowd behavior is very pervasive and you will be affected. You don’t want to be late and miss the opportunity to make money. You are afraid of losing the opportunity every hundred years.
So the result is you follow the crowd and the crowd loses money.
All surveys show that gambling or financial games involving money give people a very stimulating feeling. Maybe it’s greed or addiction. Sometimes it’s fear. But traders like the excitement of entering an order, nervously watching the price movement of each transaction.
I also don’t know exactly how to explain it. But I believe most traders have experienced something like that at least once. It’s not that they don’t know, but this is exactly an emotion of trading, emotion in the games of money.
It is this emotion that urges you to always watch the price, watch the chart, watch the news… Then, the more you watch, the more you fear losing opportunities. Fomo mentality keeps repeating. Therefore, as soon as the price moves quickly and strongly, you will be swept up in the market.
How to deal with Fomo
Do everything slow
It is rumored that Zhang Sanfeng lived to be 169 years old. But in fact, he only lived nearly 150 years old. His secret is to live slowly, breathe slowly and practice tai chi.
A turtle’s lifespan is 300 years. And the reason is the same, slow walking, slow heart rate, and slow breathing.
The slower you go, the longer you live. This is the way of life, but it is also the way of trading. The slower you go, the more time you have to think and make the right decisions.
More importantly, when you’re slow, you learn patience. You will avoid rapid traps of the market. You will never let the market control you.
Keep the money safe
You may be wondering If I don’t hurry, will I lose a good investment opportunity?
But the opportunity is not always there. The market will be there tomorrow, next weeks, months, even hundreds of years from now.
In the end, the market is still the same, still exists with a lot of opportunities. But when you lose all of your money, it means there are no opportunities.
Remember that all the investing geniuses in the world just advise you to keep your money safe and sound. No one is advising you to make money at all costs.
Stay away from the crowd
Remember Dogecoin (The Coin of Elon Musk)? It is one of the FOMO hits of 2021 worth putting in a Textbook. The boss of Tesla Corporation is the man who creates Fomo all over the world and engulfs all the investors with just a few Twitter statuses. In the end, the money goes to the pockets of the creators and the rest was buried in the grave of history.
In investing, never let the crowd decide your money. You can be wrong. Others can be wrong. Experts can be wrong sometimes. But the crowd is certainly wrong.
I do not cover trading knowledge in this article. For the sake of simplicity, I know that even if you have more knowledge, you will still fall into the Fomo trap and still lose money like everyone else.
Fomo is like a mental illness. You cannot use indicators or price patterns to fix it. You can only face and step through it with bravery, with the patience inside of you.
What if you can’t? So let the market lead you to your final resting place!!!!!
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