What is FOMO?
FOMO is short for “Fear of Missing Out,” a term used to describe the anxiety a person feels when they see others making profits or gains and they fear they might miss out. In the trading world, FOMO is strongly associated with buying assets when markets are rising rapidly, without taking into account fundamental or technical analysis.
Its relationship with trading:
In trading, FOMO can lead to making rash decisions based on emotions rather than thoughtful analysis. When the price of an asset starts to rise rapidly, traders may feel psychologically motivated to enter the market for fear of missing out, but this can lead to buying the asset at very high prices.
Should I be wary of it or get carried away with it?
Caution: FOMO can lead to bad trades. If you enter the market based on excitement rather than careful analysis, you may find yourself buying at the highest prices, then selling at the lowest prices shortly after.
Getting carried away: In some cases, some traders may take advantage of FOMO, especially in bull markets, by taking advantage of rapid spikes to buy and sell at the right times.
How to earn from FOMO?
1. Good timing: Use strategies such as momentum trading that rely on uptrends to take advantage of rapid market movements.
2. Market Analysis: Instead of following the crowd, always do technical and fundamental analysis of the assets you intend to trade.
3. Use Stop Loss: Protect yourself from big losses when the market reversals after a rapid rise.
Example:
If cryptocurrency X goes from $5 to $10 in a single day, you might feel tempted to buy it based on FOMO. But if you analyze the market and find that the rise was the result of fake news or speculation, you might decide to wait and not enter the trade. Conversely, if there is evidence that the rise is supported by strong fundamentals, you might find it wise to go with the crowd but with caution.
Conclusion:
FOMO is a natural feeling, but in trading it can lead to irrational decisions. Learn how to balance caution and drift with the market using appropriate strategies and risk management tools like stop loss.
