FUD and FOMO in Crypto-trading
FUD and FOMO:
Whenever we face a new activity, we find a series of terms specific to it (something like a glossary) that we need to know in order to develop it, and not only learn its theoretical meaning, but also to be able to apply those terms in a practical way.
In the case of investments or trading, particularly in cryptocurrencies, two of these terms are FUD and FOMO, which are closely related to market sentiment and are used by large capitals to influence novice investors.
What does mean by FUD?
Originally, FUD is an acronym for Fear, Uncertainty, and Doubt. We can usually observe the attempt to instill FUD when a negative rumor or news (which can be real or invented) about a given financial asset starts to circulate in the media. This is usually accompanied by a drop in price, due to selling by inexperienced investors, frightened by this information.
If we are novice investors and we get carried away by this news (often unfounded), in addition to the fact that we see the price fall, we are overcome by fear, since we are uncertain about what will happen to that asset, and we doubt our investment. As a result, our emotions don’t let us live in peace, and we sell the asset at a lower price than the targeted price.
And why do people spread false news, if the asset, after all, has good fundamentals to invest in? Precisely because large capitals are interested in buying this asset cheaper. If we let ourselves be carried away by the FUD, by the false news that is transmitted, we will sell the asset cheaper than we bought it, we will get out of our investment at a loss and the big capitals will take advantage of the opportunity to buy cheaper what we are selling them.
What does mean by FOMO?
On the other side of the street, we find FOMO, an acronym for Fear Of Missing Out. Missing out on what? Opportunities to make money. In this case, we hear the “noise” in the media about a financial asset that, by rising considerably in price in a short time, generates unimaginable profits. This noise then gives us the feeling that an incredible opportunity is slipping away from us.
At that moment, in desperation, we go out and buy a part of that asset, regardless of how good or bad the project is, and regardless of the price. We simply acquire it, with euphoria and the hope that it will generate great returns.
Almost always, after an asset rises in price as its demand increases, there comes a partial depreciation (what in the market we call correction) caused by those who bought it long before us, who sell it for profit. In this situation, seeing how the price goes down, we start to doubt our investment and go from FOMO to FUD in an instant, selling cheaper than what we bought.
As you can see, finding the theoretical meaning of these two terms is easy. But knowing their meaning and understanding how they affect us are two very different things. So putting into practice what we have learned in these lines is key in the financial world.
When it comes to investing we have a choice: to be like everyone else and let ourselves be influenced by the news (the bad ones that generate FUD and the good ones that cause FOMO), buying high and selling low, or to be like the big capitals that sell high to the optimists and buy low to the pessimists. And to make the right decision, it is best to be well educated.