These terms apply to any situation in which fear can get in the way, but are commonly used to describe fear-based factors that get in the way of trading.
As in most walks of life, in cryptocurrency trading specifically, neither FUD nor FOMO is your friend. Since this is a cryptocurrency site, let’s discuss how FUD and FOMO relate to crypto.
FUD is Fear, Uncertainty, and Doubt (often spread on social media or mass media). FUD can cause the price of a coin to drop, not based on fundamentals or charts, but based on bad news that spreads around social media. Many times the bad news isn’t substantiated or grounded in reality, and instead ends up being something silly like a popular talking head’s opinion that Bitcoin is a bubble. The fear, uncertainty, and doubt-inducing idea being spread around media can be referred to as FUD.
FOMO is a more personal thing. Its the fear of missing out on something that others are enjoying (for example the fear of missing out on Bitcoin gains while others are picking out their Lambos). FOMO might drive you to buy into a coin, not take profits on a coin, or not to set stops on a coin that has already gone up considerably. It is the idea you get in your head that rational profit taking or waiting for a reentry point now will result in you missing out. This fear of missing out is what causes people to buy at the top or hold during a dip after making profits (only to lose some or all of their profits again). People can be said to get FOMO when they act on impulse due to the fear of missing out.
The common thread here is that these are both emotional and fear-based factors that affect traders in the crypto market (and in other markets as well).
Two moves combat these trading mistakes:
- Stick the fundamentals and charts. If a coin’s chart looks good, and the fundamentals are there, stick to your strategy and take emotion out of it.
- Notice FUD early and react accordingly. If you think the price of a coin will drop irrationally, set your stops and be prepared to buy back in on the dip.
Of course, that is very general advice that won’t apply to every situation (for example, it depends on your trading strategy and if you are long or short).
Thus, while we want to avoid any specific investment advice here and keep things very general, there is one bit of good advice I can give you: Don’t make trades based on your fear. However, if you predict that others will react to fear, calibrate your trading strategy accordingly. In summary, say no to FOMO, but consider the effects of FUD.