Tag: FOMO

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Crypto Crypto Education

FOMO vs MOMO Trading Strategies

Trading in financial markets is quite tussling, especially considering the statistical analysis involved. The market volatilities, abnormal price plunges, and other risks make it even more difficult. Be it securities, cryptocurrency, or other tokens. It requires an investor with great expertise and patience to make profits while trading. Different traders have been trying out other trading […]

Trading in financial markets is quite tussling, especially considering the statistical analysis involved. The market volatilities, abnormal price plunges, and other risks make it even more difficult. Be it securities, cryptocurrency, or other tokens. It requires an investor with great expertise and patience to make profits while trading. Different traders have been trying out other trading […]

Trading in financial markets is quite tussling, especially considering the statistical analysis involved. The market volatilities, abnormal price plunges, and other risks make it even more difficult. Be it securities, cryptocurrency, or other tokens. It requires an investor with great expertise and patience to make profits while trading.

Different traders have been trying out other trading techniques to earn in the financial and crypto markets. Among the strategies include FOMO and Momo trading. What is FOMO or Momo though? How do they work? Please keep reading and note the difference between FOMO and Momo trading and a good investment strategy.

FOMO Trading

Fear of Missing Out, a common acronym FOMO, is a strategy where an individual enters a situation without considering the repercussions. In trading, FOMO is a strategy where an investor enters a market or leaves a market because of a feeling/fear of missing out.

The FOMO feeling affects every trader both in the traditional financial system and the crypto-system. Investors do not want to lose on significant opportunities.

Therefore, in a world where news goes around fast because of social media, FOMO trading is prevalent today. An investor notices other investors making significant progress when trading and wants to make the same returns. As such, they enter the market blindly with over-confidence and high expectations.

FOMO is often guided by ordinary human emotions like greed, fear, jealousy, etc. Primarily, the following are associated with FOMO;

  • The herd mentality is where a trader decides to conduct a trade or enter an individual market because they notice other traders following a particular pattern when joining the market.
  • Greed in trading is the need to earn high profits within the shortest period of time. A trader guided by desire often joins the market without doing thorough research but wants to take advantage of a prevailing situation.
  • Market volatility- Financial markets, especially in the crypto world, are highly volatile. In a matter of an hour, a coin may increase with great value. As such, many traders want to benefit from the prevailing market conditions.
  • Other investors get the effect of FOMO trading when they experience a series of big winning streaks. After earning highly in one investment, the investor looks for another asset, which many people deem fit, and puts their money there.
  • Losses also trigger the FOMO feeling of the investors. When they lose in one investment, they want to recover their wealth fast and, as such, make investment decisions using FOMO feelings.
  • The social media impact and news rumors also trigger FOMO trades.

Momentum Trading

Momentum trading is an investment strategy used by various traders who decide to take advantage of the surging asset prices and short-term market volatilities. Most investors prefer buying securities at a low price and wait for them to surge. But Momo is almost the opposite.

According to experts who have leveraged the Momo technique when investing, it’s easy for an individual to make more money by buying tokens at high prices and selling them at even higher prices.

Primarily, in Momo, an investor identifies securities rising in value, purchases them, and waits for the securities to reach their peak value where they sell the securities. A Momo investor only focuses on the short-term volatility and short-term up-trends of prices.

Momo traders have to be very keen to know the perfect time to buy or sell. The aim is to benefit from the peak profits. Momo trading is a continuous process where the investor realizes an uprising in a coin and invests.

Experienced traders could make better returns when they leverage Momo; however, it’s not relatively easy for rookies. An expert will be able to identify the right time to enter and leave a market position.

Among the things that characterize Momo trading include;

  • The Momo trader is keen to identify the price surges and volatility episodes and takes advantage of them.
  • After selling some security, the investor immediately looks at other securities to invest in.
  • Momo traders are market leaders. They prefer to herd the investment by entering the market first, enjoying the first gains, and leaving immediately.
  • Momo traders consider the risks before investing, unlike FOMO, who enter into a market by following the herd. If a Momo investor does not have adequate risk hedging strategies, they could end up losing.
  • The investor has to determine the right time to enter the market and the perfect time to leave. Slight delays may lead to huge losses.

Benefits and Drawbacks of Momo Trading

There are several benefits associated with Momentum trading. Momo trade has the potential to earn supernormal profits in just a short period. Additionally, a Momo trader often takes advantage of the volatility by investing when they notice a reliable value surge. Since Momo investors do not follow their emotions, they can easily make decisions to increase their returns. The trading technique has drawbacks, including requiring a lot of time and being sensitive to the market.

Comparing FOMO and Momo Trading

Although both FOMO and Momo traders want to take advantage of market volatility, the former mostly follow human emotions, while the latter prefers to do a little analysis. The FOMO trader does not research the market; instead, their investment decision is often guided by greed, jealousy, and fear. FOMO traders are mostly risk-averse; thus, they leave the market when they notice slight price changes.

On the other hand, Momo traders take advantage of market volatility, but they prefer being the market leaders instead of following other traders. Their decision-making doesn’t follow emotion; instead, they do their statistical analysis. The investor invests in tokens rising in value and sells them when they hit their peak value.

It’s quite clear that between FOMO and Momo, a serious investor will be better off using Momo to make more significant returns.

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Forex Videos

Forex Fear of Missing Out! (FOMO) Don’t Make This Basic Mistake!

https://youtu.be/H2wlrVrDo4M

https://youtu.be/H2wlrVrDo4M


Fear of Missing Out (FOMO). What is it? 

Thank you for joining this forex academy educational video.

In this session, we will be looking at the fear of missing out or f o m o.  What is it, and how does it affect trading?

The fear of missing out is a psychological aspect of trading any financial asset.  In fact, it is so deeply rooted in our psyche that it affects the way humans think about many aspects of our lives, and sometimes it’s so powerful that it blinds us to all reasonable thinking and can end up causing us to make rash decisions, which are ill-thought out, and untimely.

The fear of missing out has been with us for centuries, but it was only in 1996 that a research paper written by a marketing strategist, Dr. Dan Herman, entitled the piece ‘the fear of missing out.’

Although people can deal with the fear of missing out on social events, such as parties, or perhaps a sale where they missed a good bargain, when it encroaches into one’s financial trading ability and adversely affects decision-making, it can then become extremely expensive if not recognised and handled correctly.

A good example of FOMO is the recent bull run on bitcoin, especially bitcoin to the USD, and other crypto assets, with one broker, EToro, reporting 380,000 new accounts opened since the beginning of January 2021, and where much of the exponential growth in bitcoin / US dollar trading can be attributed to retail traders jumping on the bandwagon during the timeframe of this incredible rise in bitcoin value and where this is down to the fear of missing out.

While bitcoin was trading at 42,000 dollars and whereby institutional and professional traders were focusing on technical analysis, where analysis suggested that price was peaking, the fear of missing out traders were still piling in and buying bitcoin on CFD’s and physical exchanges at levels shown here at position A, and where the subsequent tanking to $30K wiped out accounts and where billions were lost to retail FOMO investors who bought close to or at the top of the market. 

Traders should always ask themselves if they are making their trading decisions based on sound technical and fundamental analysis, including market sentiment, or are they looking blindly, trading under FOMO pressure, looking to ride a trend wave which may be peaking or bottoming out and about to reverse? 

Here is an example of a bull run from September 2020 to January 2021 for cable, which has risen 10,000 pips and where many traders will have been buying at the top of the market because they thought there would be a continuation perhaps to 1.400 or higher, now that the United Kingdom has left the European Union with a free trade deal in place

 

 

…and many traders who thought that the EU and UK would never reach an agreement would have sold at the bottom of the bear run, which topped out at 1.3475 and gone short at 1.2700 for fear of missing out on the bear run.

Trends do not have to be in their hundreds or thousands of pips or points before a trader is worried they are missing out and jump onto one. It could be just a dozen or so pips or points. The important thing is to remember that one’s decision-making must be based on strong technical analysis while factoring in market sentiment and fundamental analysis, which may be lagging behind the market move. They should factor in the possibility of price action stalling at any point or consolidating and use relevant stops in order not to blow their accounts on a single trade. And where traders must realise that f o m o has no place in their trading armoury, which must also consist of a trading style which has consistently been providing winning trades.

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Cryptocurrencies

How To Avoid the Bitcoin FOMO and Double Your Investment

‘The hardest thing to do in a bull market is to sit,’ says Mike Novogratz, a renowned Bitcoin evangelist. This is a feeling most investors can relate to. In a bull market, prices surge, and volumes skyrocket. And with the wave comes an irresistible urge to board the bandwagon – the fear of missing out (FOMO).

‘The hardest thing to do in a bull market is to sit,’ says Mike Novogratz, a renowned Bitcoin evangelist. This is a feeling most investors can relate to. In a bull market, prices surge, and volumes skyrocket. And with the wave comes an irresistible urge to board the bandwagon – the fear of missing out (FOMO).

‘The hardest thing to do in a bull market is to sit,’ says Mike Novogratz, a renowned Bitcoin evangelist. This is a feeling most investors can relate to. In a bull market, prices surge, and volumes skyrocket. And with the wave comes an irresistible urge to board the bandwagon – the fear of missing out (FOMO).

Beginning July 2020, Bitcoin has shown steady performance against the dollar and altcoins. However, it’s the currency’s performance in October and November that has left investors scrambling for the 18.5 million or so Bitcoins in existence. The Bitcoin FOMO is officially here, and many investors will make blind decisions. 

This article will look closely at the ongoing frenzy, what it means to investors, and how to approach it. 

Bitcoin in 2020

Bitcoin started 2020 modestly, only managing to fetch about $7K in January. It briefly jumped to $10K before plunging into an abyss, exchanging at less than $5K in March. But that seems to have marked the end of the dramatic falls. From mid-March, the currency started recovering steadily, and towards the end of July, it hit the symbolic $10K figure. Every time Bitcoin climbs to $10K, investors start getting all fidgety, as has been the case several times.

Since Bitcoin reached $10K in July, it has been going up almost consistently. In less than three months, it has gained over 50%, which is more than impressive. It isn’t easy to point out with certainty how things will turn out. However, investor greed and excitement is likely to push the figures even higher, at least in the short run.

What is the Fear and Greed Index Saying?

The crypto Fear and Greed Index is a contrarian scale that expresses investors’ general sentiment with regards to fear and greed. The idea is that when fear is high up there, investors will shy from trading, and that will cause prices to decline. On the converse, if investor greed is high, increased trading, and prices will rise. 

Different crypto fear and greed indices have shown a consistent increase in greed. A higher score represents more greed, while a low score represents more fear. Since these two factors are on opposite sides of the scale, one declines as the other increases. As reported by the fear and greed indices, the trend has closely resembled Bitcoin’s price trends all year long. 

Trading volume can give a clear picture of what is going on in the Bitcoin market. Exchanges everywhere are reporting sky-high volumes. 

An increase in volume usually triggers an increase in prices and hence an increase in market cap. 

What Has Caused the Sudden Interest?

When Bitcoin reached $10K in July, there was news all over the interweb covering this historical moment. Crypto evangelists and analysts, once again, resurfaced giving their expert opinions and predictions on how Bitcoin was going to double its value unless something ‘really wrong’ happens. You could look at it like a self-fulfilling prophecy, where speculators create so much hype that the market inevitably skews to their predictions. We certainly cannot underestimate the power that speculators have on market movements. In this case, there can only be little doubt that positive news about Bitcoin’s prospects contributed to increased interest in the currency. 

News is not the only positive thing that has been going around. In 2020, there has been a particular corporate interest in crypto. Several organizations, some of them high-ranking, have expressed interest in adopting cryptocurrencies. In October, Square – a global financial services provider – bought 4,000 Bitcoins for about $50 million, saying that it believes Bitcoin aligns well with the company’s purpose. Spending such amounts of corporate cash on buying crypto signifies corporate confidence in the future of cryptocurrencies. 

Just recently also, PayPal announced plans to have Bitcoin and other cryptos on its payments platform. This announcement was immediately followed by a surge in BTC prices to reach $12K. Several other top-tier corporations have expressed interest in mainstreaming cryptocurrencies, and this is undoubtedly part of the cause of the sudden surge in interest in crypto. 

What You Should Do

If you had not invested in Bitcoin before it broke the $10K barrier, you might be late to the party. Normally, by the time the buying frenzy kicks in, early-bird investors will be counting profits. Look at it this way, those who bought Bitcoin before July 26, that’s right before it surpassed the $10K high, are already counting a 50% profit less than three months down the line (BTC was at $15K at the time of writing). 

Even so, not all is lost. There are many indications that the Bitcoin market will be on the bull run for some time – how long that is, is a matter of conjecture. Therefore, you can still invest in BTC at this time and make profits. 

If you are determined to take the risk, here are some things to consider:

#1: Set Your Investment Goal – One of the unforgivable mistakes an investor can make is not to set goals. Such blind investments unsurprisingly end in tears. Setting a goal means having a plan for when to buy and when to sell. Just like gambling, you have to know when to hold them and when to walk away. For instance, you can decide to buy and sell when the price hits a certain figure, or you could decide to sell after a fixed term – regardless of whether you have gained or lost.

#2: Do Your Due Diligence – This is usually mandatory. Even if a reputable investor has advised you, you still have to do your due diligence. This may include seeking a second opinion, evaluating your finances, finding out whether you are ready to bear the risk, and so on. Because at the end of the day, it is your money that is at stake. Rushing into buying Bitcoin, especially amid such hype, may be regrettable. 

#3: Consider Altcoins – While all the attention is on Bitcoin, investors are busy ignoring other cryptocurrencies. When the Bitcoin market eventually heads for the bear run, investors might look at other cryptos. If you invest in the right altcoin at this time, you might be where Bitcoin’s early bird investors were before the frenzy began. 

#4: Sit on Your Hands and Lock Your Phone – Well, not literally, but if you can’t resist the temptation even when nothing makes sense, just avoid the markets altogether. This decision might save the little you have from drowning away in a possible market crash. As far as investment is concerned, you can consider that a profit.

Final Thoughts

Bitcoin’s recent performance has generated a lot of interest among investors. People are rushing to buy BTC, as evidenced by the increase in trading volume across exchanges. It would be great if we could all join the bandwagon, but extra caution is necessary for such market movements. Avoiding the hype is key in making a sound investment decision. You can invest in altcoins or simply avoid the markets until such a time when you can be under less pressure to make decisions. 

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Crypto Daily Topic

Why Does Bitcoin Value Have such High Fluctuations?

Why Does Bitcoin Value Have such High Fluctuations?

Why Does Bitcoin Value Have such High Fluctuations?

Why Does Bitcoin Value Have such High Fluctuations?

The number of people using Bitcoin is steadily increasing as more excitement builds around the possibility that the currency’s value will soar in the coming years. The enthusiasm surrounding Bitcoin’s adoption is due to the hope that as a store of value, it will yield handsome returns sometime in the future. The other reason is Bitcoin’s novel features that set it apart from traditional currencies – features such as decentralization, peer-to-peer nature, and transparency of transactions. 

Bitcoin is also seen as trustworthy, something that cannot be said of Fiat currency, which is released and controlled by governments and central banks. This is why it has become the go-to currency for citizens living in nations whose currencies have been rendered useless by hyperinflation. Bitcoin also provides a faster and cheaper option to send money overseas. 

But Bitcoin has its shortcomings too. A persistent one is its volatility or pretty unpredictable price fluctuations. What this means is that these fluctuations can bring pretty handsome payoffs or wipe away your investment in one swoop. 

At the core of all this is the question: what causes this volatility? What factors conspire to make Bitcoin’s price so slippery? This article dives into the whys and whats of this phenomenon. But first, let’s get a refresher of what volatility in Bitcoin is. 

What’s Volatility in Relation to Bitcoin? 

First, let’s define volatility. In finance, we say an asset is volatile if its price is often difficult to foresee – meaning it fluctuates a lot in a relatively short time. Such an asset may move up or down in pretty significant variations within that time. However, there’s no definition for what constitutes a ‘significant variation,’ it’s subjective. However, industry experts and investors can agree that if an investment is particularly risky, then that asset is volatile. Going by this definition, then Bitcoin is undoubtedly volatile. Its price undergoes massive swings within a few days, hours, and sometimes even minutes. 

With that, let’s examine why.

#1. Market Manipulation

The Bitcoin market is prone to manipulation courtesy of lack of regulation of the market that’s caused the decentralized nature of the currency. Indeed, there are well-documented incidents of the coin’s manipulation in the past. 

Since buying and selling of Bitcoin is largely unregulated, it provides fertile ground for bad actors to manipulate the price and cash out rich long before other market players can catch on. This sort of thing contributes to Bitcoin’s volatility. 

#2. News Events

Good news or bad news can significantly contribute to the movement of Bitcoin’s price. When news surrounding Bitcoin is positive, it can increase investor confidence and lead to more market participants purchasing the coin, bumping its price higher. 

By contrast, bad news concerning Bitcoin can sink the coin’s price. For instance, $72 million worth of Bitcoin was stolen from crypto exchange Bitfinex in August 2016. The same day, the price of Bitcoin took a 20% dive. 

Other types of news items likely to affect bitcoin’s price include state or government’s new regulation plans, statements by influential figures in the finance and investment worlds, security breaches, rumors, and misinformation. 

#3. Changing Sentiment

Another driver of Bitcoin’s volatility is a change in sentiment concerning the currency. Positive news events can cause market participants to be optimistic or pessimistic about the coin and its future prospects. 

General positive sentiment in Bitcoin would prompt increased demand and an upswing in price. Other factors like price gains, combined with the media coverage surrounding those gains, can trigger more price appreciation and hence buying, causing the price to go up. 

Similarly, negative sentiments would have the exact opposite effect on the price direction. For instance, a price fall would trigger an unfavorable news cycle, causing individuals to offload their holdings or keep away from the market altogether. 

#4. Uncertainty over Bitcoin’s Future Value

This is another major factor driving the volatility of Bitcoin. Uncertainty in the currency’s future is caused by the differing views on the intrinsic value of Bitcoin. From the very beginning, questions have been raised about the fundamental value of the currency. It not being a tangible currency, and having no issuing authority makes it look like a joke to some people. 

There’s also the regulatory aspect of the market. As more governments and states move to crack down on cryptocurrency, it can cause many to question how long the coin will hold as an attractive investment that cannot be touched. In such instances, Bitcoin might lose its appeal, and more market participants would be uncertain of its future value.

#5. Forks 

It’s easy to forget sometimes that Bitcoin is just code – open source code for that matter. This means that developers can modify the code at any time to suit a particular end. When the Bitcoin community irreconcilably disagrees on something, it can lead to the blockchain being split into two, with one faction going one way and the other faction the other. 

When forks happen, the new direction of each new blockchain is uncertain at best. As a result, forks, and the emotions surrounding them, can cause volatility as investors rush to reassess their position in the face of a permanent change. For instance, when Bitcoin Cash forked from Bitcoin, Bitcoin dropped from $2800 to $2700 (July 23, 2017). 

#6. Inequality in the Coin’s Distribution

Bitcoin is extremely unevenly distributed, another factor that could fuel its volatility on occasion. Former managing director and head of financial markets research for AQR Capital Management Aaron Brown estimated in 2017 that only 1000 individuals owned approximately 40% of all bitcoins in circulation then. 

Other sources have arrived at varying figures, but they all point to the same extremity in which the small minority of the coin’s holders own the largest share. If a single individual/entity possesses a substantial amount of Bitcoin, they can trigger a major fluctuation by offloading even a small portion of that amount. The effect would even be greater if such entities were to liaise to cause significant shifts in the price. 

#7. The Tech is Still Young

The underlying technology of Bitcoin is still relatively young – just slightly over a decade old. For this reason, it will be a while before it fully matures and overcomes some of its most persistent challenges, such as scalability. 

When Bitcoin was breaking out and gaining traction, it gained more users – but it soon became evident that the network could not support a large volume of users at once. These days, it’s possible for a Bitcoin transaction to take even days before it’s completed. Situations like these could discourage users from joining the network, causing a slump in the currency’s price. 

 #8. Taxation

The IRS considers Bitcoin a taxable asset. This has affected Bitcoin’s price in more ways than one. First, it has added a whole complexity for users who want to have it as a store of value, a means of getting paid, and so on. The tax law requires users to record the market value of the coin at the time of the transaction, and enter taxes in Fiat form. This need to enter tax records every time can prove to be more trouble than worth for current and would-be users of Bitcoin. 

Also, the decision by tax authorities to tax Bitcoin can signal to potential users that stronger regulation policies are in the cards, and this can send many scurrying in the opposite direction. Extremely strong regulations would stifle the growth of the currency, preventing it from ever achieving mass adoption. This could cause many users to lose faith in the future of the currency, causing a slump in price. Also, the communication surrounding the taxation of the currency can be confusing to many users. The unenthusiasm stemming from this could contribute to Bitcoin’s volatility. 

#9. Emotions and Investing

Investing in Bitcoin can often have so many emotions involved, and this is only exacerbated by its already volatile reputation. When the currency’s price drops, investors will panic and experience fear, uncertainty, and doubt (FUD). They fear the price will only drop further. They are uncertain if it will ever recover. They doubt their investing acumen. So what do they do? They sell their holdings. This won’t have been triggered by an actual change in the coin’s value, but rather by emotions. The effect is that Bitcoin will experience a tumble. 

Another scenario is when the price of Bitcoin is on an upward trend. Individuals will get excited and experience the fear of missing out (FOMO). They fear that if they don’t buy now, they may miss out on getting rich. So they rush and purchase Bitcoin, and the overall market effect of all this buying is increased demand and price. Naturally, the price will shoot up. 

Final Thoughts

So there you have it. Knowing the triggers of Bitcoin’s volatility will help you be more aware of the events surrounding it, and this helps you make wiser decisions as far as speculating in the currency is concerned.