This fictional example happens all too often in reality. It is easy to be swept up by too much hype. There are plenty of true stories of investors profiting substantially and swiftly by buying and selling cryptocurrency. But it is important to be prepared and forewarned about a particularly tempting risk for potential investors. Rushing to invest because something seems trendy is known as the fear of missing out (or FOMO). In an attempt to turn an easy profit, emotions can often over-rule reason. Our senses tell us that we should purchase a rapidly-growing coin or buy into a popular ICO. But this kind of emotion-driven purchase rarely yields favorable outcomes.
Instead of basing your choices on what feels right, you should always do your own research. Make sure a purchase is worthwhile and also hedge your bets by spreading your funds into a variety of purchases, to avoid falling for a “golden goose” that may or may not yield results.
- FOMO is a purchase spurred by emotions rather than reason.
- A good trader will:
- Eliminate emotional decision-making from investing choices.
- Identify the best entry opportunity and appropriate exit timing.
- Avoid whale manipulation, pump and dump schemes and other scams.
Looking for the next big thing
Fear of missing out is a well-established concept in sociology. It is generally perceived as the anxiety felt when thinking that others may be partaking in something enjoyable or beneficial, while you are missing out on it. In order to rectify this, we often go out of our way to join actions and activities that drive our social group. The results do not usually turn out as positive as expected.
FOMO has been adopted by banking and has now been popularized in the crypto market. This market has a reputation as a FOMO-inducing market, especially so after the astronomical heights it has been reaching on several occasions throughout its history, allowing many investors to turn huge profits quickly. During the time of rapid growth, FOMO rears its head, and there are few who can resist the temptation to “hop on the crypto train.”
People are always on the lookout for the next big thing, a technologically-advanced blockchain or a spectacularly-scalable coin that would push the boundaries of crypto and bring about a bull run the likes of which the world has never seen. But such an exceptionally profitable opportunity is highly unlikely to present itself.
Eliminate FOMO from your life
Many participants in the market are aware of the dangers of FOMO and will exploit it for their benefit. They understand that if they can make a coin look as though it’s going up at unprecedented rates, then this will attract hordes of unsuspecting investors. They can set up pump and dump schemes to artificially inflate the price of a coin they own. A really well-off investor, or a whale, can even use their own fortune to manipulate the market single-handedly.
The smartest investors research their decisions and carefully monitor trends, as not all will be real or in your best interest to follow. You should never invest without doing your own research, no matter how lucrative an opportunity may seem. The Bitstamp exchange encourages its users to only trade what you understand.