FOMO — What is it and how to avoid the Fear of Missing Out syndrome?

FUD and FOMO Phenomena as Enemies of Profit

We all know that the financial market is a cyclical phenomenon that repeats itself time and again. It repeats for one simple reason — market processes involve people whose psychology is often similar. This is exactly why technical and candlestick analysis, patterns, and figures exist — market participants have already done everything we see on the charts today. Therefore, we only need to correctly interpret the information that appears to understand further price movement.

But this is exactly where many beginner traders face problems. They are not yet familiar with correct asset price forecasting and are used to relying on a "sixth sense," intuition, inner voice, and so on. When they mercilessly blow their deposits, statements begin like "financial markets are a pyramid scheme, you can't earn anything there, only lose." It is because of these individuals that phenomena such as FUD and FOMO exist in the market, which, in turn, explain the behavior of these people and how exactly you should not act.

In this article, we will analyze the terms FUD and FOMO in detail, and tell you how to identify and resist them.

FUD

FUD or Fear, Uncertainty, and Doubt — literally translates as fear, uncertainty, and doubt. It represents psychological manipulation that can be found in many aspects of life: in politics, religion, media, stores, and more. Putting it simply, FUD is a "hit piece" or misinformation. The goal of FUD is to provide deliberately false information that should cause fear and uncertainty in the target audience. Considering that slander is a criminal offense nowadays, FUD is presented in the form of veiled phrases and hints. However, there are cases where the original source of FUD does not hold back and directly presents false information as truth.

Example of FUD

Let’s look at an example of FUD in the cryptocurrency market, specifically the Russian market.

A statement from the regulatory authorities of the Russian Federation:

"From January 1, 2021, all digital assets on the territory of the Russian Federation are subject to regulation. Holders of digital assets must register them in a special register created specifically for counting cryptocurrencies in the country. Those holders of digital assets who refuse mandatory declaration of cryptocurrencies will face administrative and criminal liability."

It turns out that since 2021, cryptocurrencies in Russia are subject to regulation, which implies registering every crypto asset. Such a step mandates tax payments from this activity and contributions to the Pension Fund (PFR). Every rational representative of the Russian crypto community understood that this is not a very bright procedure, but there is nothing to fear here, for three reasons:

1. Many crypto traders and investors are not used to reporting their activities to anyone. They most likely came to this market because cryptocurrencies provide anonymity to their holders; plus, most traders use a VPN. They might agree to pay taxes to freely manage earned funds, but PFR contributions are useless to them;

2. As it turned out, the bill was quite "raw," as is usually the case with many innovations. In this regard, there are many "holes" that allow for bypassing taxation, and this was clear even before the new law came into force;

3. No one intended or intends to ban the use of cryptocurrencies as an investment asset. Yes, digital assets still cannot be used as a means of payment, but even worldwide, there are not many countries where you can pay for everything with crypto, so Russia was no exception here.

These are three obvious facts that immediately catch the eye when reading this bill. In general, there will be nothing critical for cryptocurrency users; at most, they will be forced to pay taxes, but investors from traditional markets have been doing this for a long time and do not stop buying, for example, stocks.

Market Participant Behavior During FUD

But how will an uninformed crypto trader who has recently joined the ranks act? Most likely, they will rush to sell all their crypto assets under the pretext of their further ban in the Russian Federation and lack of demand in general. Also, they will be very frightened by the excerpt from the bill about "...refuse mandatory declaration... face administrative and criminal liability," because no one wants to have problems with the law.

And here is how the same information could be presented by a news resource that has a small but loyal audience:

"The state is preparing a bill that completely bans cryptocurrency in Russia. Those who are caught in cryptocurrency activities risk getting a long sentence in places not so distant. It turns out that in six months, we will be outlaws."

Again, a representative of the crypto community with logical thinking would simply start double-checking this information, and after finding the original bill, would draw the conclusions described above. But people who lack the capacity for critical thinking would simply sell all their digital assets and start looking for a new way to earn money.

How to Resist FUD

As you have already realized, fighting FUD is quite simple — double-check all the information you encounter on the internet, and in most cases, the search will not be in vain.

FOMO

FOMO or Fear Of Missing Out — literally translates as "the fear of missing something important," and in the crypto market, it is known as "panic trading." The phenomenon is quite common in the crypto community and involves actions by market participants guided by emotions — the fear of not making money in time or losing their deposit. Usually, at such moments, a trader enters a deal, and the price reverses almost immediately, causing losses. Of course, after this, talk of secret conspiracies and Masons taking money from ordinary workers begins.

Example of FOMO

Identifying FOMO in a trader's actions is extremely simple:

1. A buy trade is opened after a large green candle is formed, in anticipation of continued price movement;

2. A sell trade is opened after a large red candle is formed, guided by the same principles.

The result is losses in each case, and the reason for this is the emotions to which the trader is subject at the moment of opening such trades. Preference is given to the momentary state of the market, which is not supported by asset analysis, which in most cases is a bad idea. However, if FOMO did not exist, we would see price reversals much less often, because deals would be opened only after careful forecasting of the asset's movement.

Consequences of FOMO

The phenomenon of FOMO in its manifestations is not as scary as the consequences it carries, and we are not talking about losses now. If you realized that you opened trades under the influence of FOMO, there is nothing shameful about it. The main thing is that you understood it and are working to ensure it doesn't happen again.

There is a deeper problem that FOMO carries — the blunting of logical thinking. The fact is that traders do not always incur losses when giving in to emotions while trading. Profit is quite real and may even exceed what the trader received earlier without giving in to emotions.

This moment is the most dangerous because the trader begins to identify FOMO as analysis, trying to earn with its help again. Besides the threat of losing the deposit, the market participant stops thinking logically; they no longer see patterns and figures on the chart but simply wait for the price to go in the direction they want. In essence, the trader will only see on the chart what they want to see, not what is actually there. Also, neglect of risk management will begin, which is the basis of successful trading in financial markets, and in the end, only an empty account will remain.

How to Fight FOMO Syndrome

If you have a well-thought-out trading strategy, there is no need to resort to FOMO — you yourself perfectly understand when and what needs to be done. FOMO is logical only if a strong, upward trend is observed. However, if the trend and its further movement are clear to you, then emotions are useless here; you can simply stick to your trading strategy and get the same result.

Moreover, the crypto market is volatile, and asset prices always move with retracements. With correct price forecasting, you will likely find a more optimal entry point for a trade. Therefore, if you clearly observe FOMO on the chart, it is better to think through a further plan of action than to follow emotions and thoughtlessly enter trades. If you learn to correctly recognize patterns, figures, and apply technical analysis, FOMO will disappear for you, and only the chart will remain, which carries a wealth of information for traders.

Conclusion

FUD and FOMO phenomena arise from human incompetence in financial markets. There is not a single professional trader who would sell or buy based on an inner voice or emotions. The more responsibly a trader treats technical and candlestick analysis procedures, the less likely they are to be subject to FUD and FOMO effects.

The behavior of market participants is psychology that one should learn to interpret correctly; then all problems related to emotions and consuming unnecessary information will disappear by themselves. And in understanding behavior and analyzing the actions of market participants, the on-chain analytics service Arbitrage Scanner will help you.