Buy when there’s blood in the streets, even if the blood is your own. (Baron Rothschild)
Many people are afraid to miss important events — events they see others attending or enjoying. The same phenomenon is noticeable in trading, where it is called the loss of profit syndrome (more commonly known as FOMO; the Fear of Missing Out). This article will explain how FOMO affects traders and even non-traders.
Due to the Coronavirus and the increase in the United States’ debt — due to the stimulus checks to save the American Economy — we expect inflation to be more prominent than ever. It is also expected that currencies will lose their value faster. This makes people want to search for opportunities to save their money and, naturally, opportunities to make a profit.
There is a greater demand for real estate in less urban areas since people are trying to avoid the virus and are seeking to live a little bit further away from their neighbours than is possible in an urban setting.
This has increased the price in building materials and real estate in the countryside. This can also be blamed on the FOMO effect since people are buying into real estate at the moment both in fear of the virus and also in fear of not being able to buy real estate once the prices decrease again. This is where the FOMO effect is prominent in the lives of non-traders.
Nowadays, FOMO spreads quickly due to the popularity of smartphones and social networks. Many are simultaneously afraid of social isolation and of missed opportunities. Due to the internet and social media, the lives of others are more accessible and visible to us.
Not only that, but there is an increase in advertisements for luxury brands and vacations. That is why people are willing to buy cryptocurrency, real estate or even cars at an all-time high price, even in cases where the value of the investment is likely to decrease each year such as with a car.
A similar situation is observable in trading. As soon as traders see a formed bullish trend (growing channel), they start to open trades and buy assets that correspond to the technical analysis. In addition, a lot of information, opinions, and impressions are communicated around us, which only aggravates the situation. Let’s figure out how to deal with this obsessive fear and make better decisions.
The FOMO effects
Lost profits syndrome refers to a strong fear of missing out on an important event or opportunity. This fear is especially prominent against the backdrop of the apparently bright life of friends and acquaintances, which we can see on their social feeds. It is directly related to dissatisfaction with personal life, and social media only exacerbates the unpleasant feeling.
The more dissatisfaction one experiences, the stronger the desire becomes to find a personal way to increase satisfaction in one’s own life.s. This in turn increases the feeling of FOMO and leads to the following:
- Frequent fear of missing out on something important;
- Constant use of the phrase or thought “everyone but me”;
- The desire to delve into all sorts of forms of social communication (attend all parties, go to concerts);
- An obsessive desire to always please others, accept praise and be available for communication;
- The need for constant updating of the feed on Facebook, Instagram, and other social networks.
This leads to a decrease in mood, and can even lead to depression. But most often, FOMO manifests itself as feelings of boredom, apathy, and loneliness. Also, people with lost profits syndrome use social media to express themselves and their dissatisfaction, which leads others to feel the same way..
Do you have FOMO?
To find out if you have FOMO, take this short test. Read each statement and answer honestly whether you agree with it or not:
- I always closely follow the prices of stocks, cryptocurrencies,fiat currency,, or other assets.
- I am afraid to miss important news that can provoke an increase in the price of an asset.
- A smartphone is an extension of my hand and is always with me, I always monitor the assets that I bought.
- I always check my messages on my phone as soon as notifications arrive, fearing I might miss something important.
- I am afraid in some way to be left without gadgets because they are part of my life.
- I strive to respond to messages on time and keep track of important news, because I may not see something urgent on time.
- I always check for new posts and messages in social networks in my profile or on the pages of interest to me.
- I am disappointed that I didn’t buy a crypto asset before it went up in price.
- I want to be at cool parties and interesting events, I want to earn X’s and spend a lot of money on entertainment.
If you answered “Yes” to 5 or more statements, then it is quite possible that you suffer from lost profits syndrome.
How to get rid of lost profits syndrome?
By constantly responding to messages and checking the cryptocurrency rate every 2 minutes, you are wasting your own time. Therefore, you should establish clear rules for using a PC and a smartphone. Follow these recommendations to decrease your FOMO:
- Remove unnecessary applications and disable pop-up notifications in those programs that are not of great importance.
- Leave groups and unsubscribe from accounts that are not useful to you.
- Refuse unnecessary email newsletters.
- Check news and stock quotes no more than twice a day (for example, in the morning and in the evening).
- Do not take your smartphone to bed and do not surf the Internet before falling asleep.
- Create two separate schedules for personal and business messages.
At first it will be difficult for you to get used to your new restrictions. Therefore, it is important to take these steps gradually to get used to the new way of life.
FUD stands for “Fear, Uncertainty, and Doubt” and is used in slang generally in relation to stories — often spread on social media or mass media– about conditions which may affect an investment The FOMO-FUD cycle refers to psychological manipulations that are designed to form the necessary opinion of society — a kind of weaponizing of human psychology in order to drive public opinion in a particular way. It is used not only in marketing and propaganda, but also in trading. The FOMO-FUD cycle is also called the “fear and greed cycle”. The graph below indicates how the cycle works:
According to the American neuroscientist and philosopher Bobby Azaryan, during the FOMO-FUD cycle, there are disseminators of fear and greed who are conducting a kind of psychological and informational warfare. It has one goal: to attract an interested investor and grab their attention. Sometimes such attempts are successful in driving the market in the direction desired by the person doing it.s. In the crypto world, the opinions of other people can bring not only benefit but also harm.
The creators of cryptocurrencies are, after all, fighting not only for investors and their money, but they are also doing everything possible to ensure that no other token exceeds their own asset in value or exceeds their capitalisation.
At the same time, Azaryan notes that although the FOMO-FUD cycle is an interesting topic for research, it has serious material consequences for traders. Therefore, they should be indifferent not only to sensations in the cryptocurrency market, but also to scepticism of it.
FOMO in trading and investment
Since we have already mentioned that the loss of profit syndrome is about trading, let’s take a closer look at this issue. In the crypto world, the topic of FOMO is especially important. During uptrends in the market, many believe that if you buy an asset at the stage of its growth in value, then soon it will bring a considerable profit (this is a kind of cognitive distortion).
If I bought bitcoin when it cost 1 dollar I could be a billionaire now. If we could predict the future we all would be rich and live in Monaco or wherever we want. Such words only enhance the effect of FOMO, which then leads to hundreds of investors not analysing the market and spontaneously buying crypto at a disadvantageous price. However, with a constantly growing market, asset prices cannot reflect their real value. Those who have invested because of FOMO run the risk of losing funds.
And yet,very few people stop believing in the cryptocurrency market after this until the next “to the moon”. If an investor listened to others and also invested in an asset based on the idea of growth, guided by someone else’s opinion, then they are responding emotionally and not rationally. But this is precisely the main skill of a successful crypto trader – to understand the market, always think with your own head and have your own opinion.
Also, copying someone’s profitable trades and collecting the same investment portfolio as that of a recognised trading guru is also not a great idea. Remember – everyone has their own developed strategy, clear goals, and perspectives. Not everyone is equally willing to take risks. Therefore, it is not always worth imitating other traders. Nonetheless, you can still listen to their opinions.
Five tips for an investor to avoid FOMO syndrome
Instead of succumbing to the fear of missing out, you can change your life for the better and gain success in the cryptocurrency field.
Here are our five tips on how to prevent FOMO from affecting your investment.
Forget about the past
What has already happened on the market does not matter from the FOMO point of view. The Gambler’s Fallacy is the tendency to think that future probabilities are altered by past events, when in reality they are unchanged, and this also applies to investment. There’s a reason it is called a fallacy. .Successful investors always devote time to fundamental and technical analysis at the time of opening a deal: they look at the current state of assets and assess their prospects for the future, based on price charts in the past.
The opinion that there can be only one chance for life is absolutely false. Profitable opportunities always present themselves and will always be possible, just like the market has always been profitable in the long run and will be. Charts will never tell you what changes an asset will go through in the future. They simply provide information about the events that have happened and possible probabilities in the future. Therefore, competent long-term investors understand that while it is never too late to buy assets, it is important to navigate them and make informed decisions.
Buy when everyone is selling and sell when everyone else is buying
There is an opinion that it is necessary to go against the trend on the stock exchange. Of course, it’s easy to talk about it, but it’s difficult to translate all this into reality. After all, the effect of the lost profits syndrome only intensifies when you do not invest in a growing asset.
“Countercyclical” behaviour can be defined as the most successful purchases with possibly high profitability occurring during a fall in the exchange rate and general panic, when sales are on the rise in value while everyone else is looking the other way, trying to buy a cue ball or another crypto as quickly as possible.
However, this tactic does not mean a ban on buying tokens on an uptrend. It is inextricably linked to the following advice, so it should be taken together.
Set clear goals
Remember your chosen strategy and set goals when buying a particular cryptocurrency. One of the possible options is target cost. If the exchange rate has reached your indicator, feel free to sell the asset and fix the profit, or place a stop loss with the hope that the trend will continue.
Many traders use a simple rule – it is better to get $ 4,000 for each piece 10 times than to wait for 50 pieces for six months. If the deal brings 50% profit or more in a short period of time, then it is better to close it. This should become a worked-out mechanism.
Usually, when the value of a cryptocurrency begins to increase rapidly, many market participants buy it. When crypto starts to decrease, they sell the asset and later watch with dismay its further growth. The conditions of its further growth were already starting up at the time of the fall of course, that is the nature of a cyclical asset. Growth stops when others get the collective idea that the coin is “overheated” and no longer has the potential to grow. Conclusion is thus that while the majority buys a coin on the rise due to FOMO, you do the opposite: sell and get your profit.
Purchasing during a price drop is subject to the same dangers of emotional reactions. After all, not everything will be so profitable when it becomes cheaper. Here the rational investor looks at the reasons for the price drop in the first place.. If unforeseen circumstances have happened, for example, a lawsuit by a state regulator in court, then you need to decide what price point of the asset will become the most attractive for you in the current period, or how critical the situation is.
Naturally, I have mentioned isolated cases here. To analyse all possible market situations, I would need to publish an entire online almanac. Each case has a common feature – the psychology of human behaviour. Therefore, do not succumb to general panic or joy.
If there are no ideas for investing – wait
Well-known stock speculator and Wall Street investor Jesse Livermore said: “Big money doesn’t buy or sell; big money is waiting!” This is true, because one day you will not be able to find more interesting coins to invest in. There will be extremely few of them, and the crypto market will continue to conquer new heights.
If you do not see tokens that can fit into your trading strategy, build up your account balance for future trades. You can also close some positions that showed strong growth and redistribute investments in the portfolio (rebalance). Just wait for the moment when the angry crowd screams about the next rise or funeral of the crypto market. This will be your long-awaited chance!
Your strategy is key
If you want to be successful in the long term in trading, , learn fundamental and technical analysis, know how to set goals, and assess the potential of tokens – this will bear fruit. Do not stop there, keep developing further as there is no limit to perfection!
Every day, new trading tools, technologies and new tokens appear that promise to bring significant profit and make cryptocurrency trading as convenient as possible. Do not chase the machinations of speculators. Become the best in your field. Keep a clear mind and try not to be influenced by the masses.