Risk of FOMO Trading (Fear of Missing Out)
As stock market continues to rise, many investors and traders are desperate to buy at high prices. The same happens in cryptocurrency. Many people are desperate to buy Bitcoin, Ripple, or Ethereum at a very high price, even if they do not know what cryptocurrency is and only hope to get rich quick like everyone else has bought it before. Why is that? This happens because they are afraid to miss not get the profit. This is a phenomenon called FOMO (Fear Of Missing Out). Trading based on emotions like FOMO is very risky. What exactly is FOMO? How does it happen in terms of psychological aspects? What is the danger? And how to solve it? Read the next article to learn more about FOMO.
WHATI IS FOMO?
FOMO is an acronym of Fear Of Missing Out. The term is increasingly popular because of the social media. FOMO is often used to refer to someone who is addicted to social media. Someone who doesn't want to miss information, news, and other gossip, forces himself / herself online continuously.
FOMO IN TRADING AND INVESTMENT
FOMO also occurs in stock market, forex, or others such as cryptocurrency. Many people buy cryptocurrencies like Bitcoin while they have no idea or little understanding of Bitcoin. Many people also chase stocks during a rally, then end up buying at higher stock prices. And mostly due to FOMO - Fear of being left behind. No one wants to miss the chance to get rich.
HOW CAN FOMO HAPPEN?
FOMO is closely related to Trading Psychology, especially Recency Bias. This psychological bias is a condition where recent experience greatly influences one's thinking. Bitcoin prices continue to soar made people think that prices tend to rise again in the future. Stock prices continue to rise made people think that stock prices will tend to rise again in the future. Yet the fact is not. A rising price does not guarantee the price will go up further in the future. Could be even plummeted later.
Media including social media has also expanded the FOMO's impact on trading and investment. Information about stocks, forex, bitcoin that keeps rising and being discussed in groups, forums, communities also affects many people. The fear of losing opportunities is getting stronger, especially if someone posts a profit, and with this information, they feel they must do something! That is, participate in the rally and do not want to lose the opportunity.
WHAT IS RISK OF FOMO TRADING?
FOMO can have serious consequences for us as traders, because it undermines our ability to form objective decisions in trading. Why? Because we tend to be too focused to not lose the opportunity and finally desperately buying at higher prices. And pursuing higher prices means you are more likely to take a greater risk. If the price suddenly plummeted, you will lose a lot. Because basically any party will have to end somehow. Prices that continue to rise, sooner or later will go down.
HOW TO OVERCOME FOMO
Then how to overcome FOMO in trading?
- First, you must have a Trading System. This will guide you in making decisions in trading, thus you can decide entering the market or not
- Psychologically, although difficult, you should stop and ask yourself if you want to enter the market. For example: "Why am I entering at this price?", "Is this in accordance with the trading plan?", "What are the risks?". By pausing and asking yourself, you can allow logical thinking to work and decisions made will be more objective
- Use automatic orders, such as Buy Limit, Buy Stop, Sell Limit, Sell Stop. These automated orders are the best way to ensure that you enter the market on your own criteria and not by fear of missing out something.
Hope this article inspires