Psychology: FOMO and fear
Lesson 14 of 39 in the course “Crypto”. Free, with animations and a quiz.
FOMO: fear of missing out
FOMO (fear of missing out) is the fear of missing a rally. You see green candles, everyone in the chat is bragging, and your finger hits “buy”, often right at the top. The picture is an emotion scale: 0 is fear, 100 is greed. FOMO lives at the right edge. Rule: if price already took off without you, skip the trade. There will be plenty more trades.
Revenge trading
Revenge trading: after a loss you want to win it back right away with a bigger position. Anger makes the call, not your plan. That is how accounts usually get wiped: one bad trade turns into five. Took a loss that knocked you off balance? Close the chart and take a break.
Fear: the other extreme
The left edge of the scale is fear. After a couple of losses you are scared to enter even when your plan says go, you close a winning trade too early, or you move your stop-loss (the order that closes the trade at a loss) further away just to avoid taking the loss. That last one is the most dangerous: a small loss grows into a big one. In short: greed and fear break your plan equally well.
The plan decides
A trading plan: entry, stop-loss and target are written down before the trade, and the risk is set in advance, for example 1% of the account. Then you just follow it. Emotions will not vanish, but the plan decides, not your mood. The picture shows why: at 1% risk, five losses in a row cost 4.9% of the account, and you calmly keep going.
Check yourself
- FOMO is...
Correct answer: The fear of missing a rally. FOMO, fear of missing out, is the fear of missing a rally. It pushes you to buy after price already ran. The urge to win back a loss is revenge trading. - After a losing streak, the best move is to...
Correct answer: Take a break and cool down. A break brings back a cool head. A bigger position or a removed stop is revenge trading, and it only digs the hole deeper. - The best defence against emotions in trading?
Correct answer: A plan written before entry. A plan decides entry, stop and target in advance. Gut feeling and other people’s signals easily drag you along with the crowd.