A deep understanding of FOMO and its manifestations is key to learning how to control your emotions and make more rational decisions in cryptocurrency or stock trading.
Here are 5 principles to help overcome the FOMO effect:
1. Let go of the past
Constantly regretting missed opportunities prevents rational decision-making. Remember, the market offers new opportunities every day. Focus on current trends rather than what could have happened if you had bought Bitcoin at $1. For example, if you did not buy Tesla shares in 2010, it does not mean there are no promising investments now. Staying emotionally detached is crucial to build resilience against FOMO in trading.
2. Buy when others sell, and sell when others buy
Follow Warren Buffett’s principle: “Be greedy when others are fearful, and fearful when others are greedy.” This counter-cyclical strategy enables you to take advantage of market fluctuations. During periods of panic, when most investors are selling, you can buy assets at lower prices. For example, in March 2020, when markets crashed due to the pandemic, it was a great opportunity to purchase stocks at discounted prices.
However, it is essential to consider risks and take precautions to:
- avoid buying shares of a company on the brink of bankruptcy;
- avoid investing in a fraudulent cryptocurrency project;
- avoid “catching falling knives“;
- avoid becoming a victim of trading against the trend.
3. Set clear goals
Define your financial goals and investment time horizons. This will help you stay focused and avoid impulsive decisions. For example, if your goal is to save for retirement in 20 years, short-term market fluctuations should not worry you. The same applies to a “buy and hold” strategy for the cryptocurrency market. Clearly outline your goals, such as: “increase capital by 50% in 2 years” or “generate an additional income of 15% annually.” Having well-defined long-term goals makes it easier to ignore short-term FOMO spikes in the markets.
4. If you have no trading ideas — wait
Sometimes doing nothing is the best option. Trading for the sake of trading often leads to losses. If you are not confident in a trade, why open it? Famous investor Peter Lynch said, “You don’t need to trade a lot to make money. It is important to make fewer, but better trades.” This is especially relevant in volatile FOMO markets, where emotions play a significant role.
5. Strategy is the key
Develop and adhere to your strategy based on:
- a clear trading advantage;
- your risk profile, time horizon, and financial goals.
Take the FOMO effect into account when developing your strategy. Stock trading operates on a zero-sum basis (buyers profit from sellers’ losses, and vice versa). When a lot of inexperienced individuals rush to buy a rapidly appreciating asset and enter the market, it can increase the potential for profits on the short side of the market, although not always.
Considering that FOMO describes the anxiety and impulse to act without careful thought, driven by the fear of missing out on significant events, opportunities, or information, it is reasonable to say that FOMO (Fear of Missing Out) is a psychological syndrome. If this pathology is too strong, it is best to avoid trading.
