FOMO, FUD trading market psychology
What is FOMO
Tracing back to history the word FOMO was first described 21 years ago by Dr. Dan Herman in an Academy paper titled "The Journal of Brand Management.” source
The acronym (FOMO) which stands for Fear Of Missing Out can be described as a feeling of anxiety where an individual/investor has some emotional idea of missing out on something very important while other people around are busy making a good fortune from it. In the circular world, social media have made it easier for friends to stay connected seeing a particular friend doing good financially can propel one to start asking himself questions of where have they been missing out and left behind while others are buying cashing out.
This FOMO also applies to the trading and financial markets where traders or investors feel they are missing out on a particular market bull run while others are making lucrative profits from it.
In trading, FOMO occurs prevalently when the price of a particular asset or pair is priced high making its value increase exponentially taking BTC as a typical example earlier this year it made an ultimate all-time high in price and this has made lots of investors and traders buy BTC pair at around 60k. We saw how BTC became a trending topic all over the world as more users did buy more from the top I was one of those that did buy at that high price hoping it would make a 100k all-time high.
I bought them because everyone was making a good profit and sharing their earning experience.
How to avoid being caught up by FOMO
From the experience/example made above, I had to learn not to buy a particular currency because everyone is talking about it the key is patience as learned from the class there is always a second chance in the market so wait patiently and taking the right opportunity on trade is important to make proper research on why a coin is pricing high apply proper technical support tools before making the extra decision of buying from the top.
FOMO in trades occurs in most cases when there are big moves in a pair price these big moves can be effect by whales buying large amounts of token an example when tesla announced accepting BTC for the purchase of its electric cars we saw a big spike in the price of BTC.
As big whales make move, small investors seize the opportunity and buy-in as well making the price go up even high, the FOMO starts occurring when these big whales begin to close their entry by taking profit which means they start sell-off their bought token this makes the price of such token to start dumping traders or investors with little understanding of the market tend to buy at such stage either the peak or when these big whales close their entry this caused lot of loss to such investor leaving them to exit the market with great loss.
The above chart shows the price of BTC at its peak in April 2021 Bitcoin became a major trend in the market where lots of investors began to buy more and hold during the bull rally that started in early March and we can see from the above chart its peak in April and started dumping at the end of April.
Early investors who catch up with the trend when whales buy in March made a good profit while those in the FOMO circle bought at the end of April when the price was dumping which left them with great loss.
Stating in our lecture class it can also be observed from the circle presented by the professor FOMO occur in the circle at the
Why** FOMO happens can be seen from our topic definition people don't want to be left behind which allows greed to creep in and they would probably sell their properties to buy in at peak of the trend which can result in great loss.
What is FUD
One limiting human factor in trade is the lack of the ability to predict the future this limitation makes traders scared, doubt, and, become uncertain of what will happen in the next few hours.
As a trader, I've made lots of indecisive decisions where I've sold my open position at the point of getting liquidation and in few minutes the market starts to recover again what made me sold was fear of losing all my assets doubt that the price will continue to dump and, uncertain of what will happen next if I don't close makes me sell out to save my asset from liquidation.
FUD can be depicted as the opposite of FOMO since most occurrences of FUD happens in the bear market.
FUD can also be referred to as negative information that is spread in the crypto space which makes traders and investors start selling or dumping a particular token china crackdown of mining rigs made the price of BTC dump resulting to fear from holder not knowing what fate BTC holds in the future.
The screenshot above is taken from my binance trading app and is used to illustrate various FUD stage
An important reason why this happens is a lack of patience and proper technical analysis Buying from the top is not such a great idea that can cause FUD for traders.
Conclusion
Traders/investors need to note that market psychology is part of trading activity understanding how this market psychology works will help a trader maximize risk and take proper advantage of the market trends.
Patience is also an important emotional tool that can be used in trend psychology not following the crowd to buy because everyone is buying is an important virtue.
