The FOMO effect is the abbreviation of the English phrase "Fear Of Missing Out". In Vietnamese, we can understand it as "fear of losing a big opportunity". Especially in currency investing, the FOMO effect is a negative emotional state. It makes people easily agitated and leads to instinctive behavior.
So, what exactly is the FOMO effect? What are the negative aspects of currency investing? Let’s reveal the truth about FOMO below, and how to avoid it.
What is FOMO?
FOMO stands for Fear of Missing Out, a psychological syndrome that often occurs when investors worry about missing out on opportunities to make money in the market. FOMO can affect anyone, even if you are an experienced trader or new to the investment market or financial trading.
From an economic perspective, FOMO can have a negative impact on investors' psychology, such as depression and loss aversion. In particular, FOMO is the biggest enemy that leads to bad decisions in investing or financial trading.
When experiencing a FOMO mentality, investors are likely to fall into a state dominated by greed or envy (compared to the success of other investors), which causes most investors to no longer be vigilant and rational to accurately monitor and evaluate market fluctuations.
FOMO syndrome usually increases when the market enters "sensitive" periods, such as when the market changes direction, the market is growing (uptrend), or the market is declining (downtrend). Therefore, most trading or financial investment decisions affected by FOMO usually fail and result in losses. However, investors can avoid being affected by FOMO by following the trading and investing methods laid out from the start.
Characteristics of suffering from FOMO syndrome
Because FOMO is a psychological syndrome, it will have common "general psychological symptoms" such as:
Greedy mentality
This is an emotional state of excitement and a desire to immediately engage in trading or investing activities for immediate profit. Or lose your cool when considering the huge profits you can make from trading or investing.
Mass mentality
Investors often rely on news sources, signals or reactions from market participating groups when they do not have sufficient knowledge to make their own trading and investment decisions. Investors then act like those groups, forgetting that profits are only made by a small number of knowledgeable investors, not the masses.
Restless
FOMO makes you think this is your biggest and only opportunity. If you miss it, you will no longer have "lucrative" opportunities like that. As a result, you cannot analyze or consider patiently and often act in haste. There is no doubt that hasty decisions often bring countless risks.
fantasies and expectations
Through social networks, you will see many investors who have multiplied their accounts several times in a short period of time, but you do not see investing in learning, failure, and hard work to learn and improve your skills. After "burning your account" so many times, even just learning the basic trading and investing tools will lead you to expect to achieve the same results as the successful investor above. Even more dangerous is if you are successful on your first few trades. All of this can create a false sense of your knowledge, trading and investing skills, leading to subjectivity when investing.
Most investors report a series of early successes followed by major failures. Due to lack of knowledge investors fail in many trades and investments. You should develop a fearful mentality, doubt your own abilities, and believe that the market is fraudulent and negative. And that could be the end of their trading and investing careers.
What causes FOMO syndrome
FOMO is easily affected by many reasons, both subjective and objective. Investors should pay special attention to the following reasons and quickly prevent factors that cause FOMO!
Objective reasons
Market Growth (Uptrend)
When the market grows, profitable investments become profitable, so the general psychological state of investors is very positive and excited. New investors can suffer from FOMO and rush into the market without preparatory knowledge. As a result, when the market corrects or fluctuates after a bull market cycle, new investors are often unable to restore capital in time to make reasonable profits and fall into a disadvantageous position.
Malicious Market News Sources
"Loitering" and casually joining news groups, market signal groups, communities or spontaneous forums is a common phenomenon for new investors. In these places, they can access unofficial news sources, outdated news, or fraudulent news. Coupled with the mass effect created by community members joining in. This can easily push investors into FOMO syndrome, acting on inaccurate news or following the crowd. What's even more dangerous is that investors' assets will be misappropriated by fraudsters.
Subjective reasons
People choose short-term trading style
Short-term trading (swing or scalping) is a fast, profitable trade suitable for investors with knowledge and experience of technical analysis. However, many new investors are impatient, subjectively participate in short-term transactions, invest a lot of capital, and then "stick to FOMO", resulting in little winning, but a lot lost when losing.
No trading or investing strategy or methodology
Successful investors have scientific trading and investment method systems that have been studied and practiced in the market for a long time. New investors enter the market without a plan and without a method, so when they suffer from FOMO they have no support or rules to follow.
No capital management and risk management
Lack of market experience makes new investors subjective and unable to measure risks. Therefore, it is easy to be affected by FOMO and be willing to put all your capital into a trade and invest without thinking about it.
Tips for controlling FOMO in trading
Managing FOMO is an ongoing process. Therefore, you will fight against and control it throughout your trading career. Here are some tips for controlling FOMO in trading:
The market will always exist
Understand the market you trade
Have a trading strategy and plan
Clearly state the reason for engaging in the transaction
Keep a trading diary
Make sure you have enough capital to prepare for the trade
in conclusion
Advice on avoiding the negative impact of FOMO on investment decisions is key, as being too emotional and rushing to follow market hot spots can lead to unwise investment decisions. To make wise investment choices, one should stick to a long-term investment strategy, conduct adequate research and due diligence, and not be influenced by short-term market fluctuations or other investors. Staying calm and rational while investing increases your chances of long-term investment success.
