Ask the orb: What is FOMO, and why should we avoid them?
FOMO or Fear Of Missing Out is a behavior that when a specific token’s price surges abruptly, people tend to panic in buying such crypto, which majority of the time ends up regretting such act. This is because the decision to buy was based on the notion of not missing out on the 10x or 100x opportunity that rarely happens.
As always, one should first DYOR before investing in any cryptocurrency due to the fact that it is risky and very volatile. What FOMO does is strip out that essential part as surges is time-bound. This is a discouraged practice since not all sudden surges are permanent. Meaning, when the sudden surge occurs, it is not always an upward trend. Typically, they are just what we call a Dead Cat Bounce.
Dead Cat Bounce, explained!
Every market we see in every reliable website generally follows a trend, either upward or downward. This trend is what traders use to determine whether the market is in a bullish or bearish run, thus guiding them whether if it’s the right time to invest or to wait out a little bit.
In each run, we will see that there are sudden surges and plunges, but through time, it will return to its established trend; that’s where the Dead Cat Bounce enters the picture. This is because the Dead Cat Bounce is the short-lived recovery of asset prices from a prolonged downtrend, but it continues in that trend after a short time. An example can be seen below:
This is a classic example of a Dead Cat Bounce. If we zoom out, we can see that it went from 0.15 USD to 0.21 USD or a 20% increase in just a matter of hours. This was also when Elon Musk tweeted that he would make Tesla merchandise where Dogecoin would be used as a payment method. Many people on Twitter and other social media platforms said that they had bought the sudden surge believing that it was the time for DOGE to go to the moon. However, similar to the other Dead Cat Bounce cases, it went further down and continued the bear run.
FOMO is discouraged to limit those who fell victim to the Dead Cat Bounce trap and end up losing money. To avoid this trap, here are some tips to help:
Tips to avoid the Dead Cat Bounce
1. Look for the established trend. If the surge does not go beyond the trend line, that’s a Dead Cat Bounce!
2. Reflect before buying. If the sudden surge is irresistible at 100% gains for the past 24 hours, decide based on your research and not just the numbers as they can be misleading.
3. Keep in touch with a community that does market analysis for free. They can help you understand how the market is doing, generally from doing their own research. They are free and available for everyone.
Before we invest, we must first understand that our money could be lost if we are negligent with our actions in crypto trading. Like in every gamble, trading in crypto could be a losing game if we do not understand how the game works. Thus, it is essential for us to have a working knowledge of the crypto project we wish to put our money in, its mechanisms, and the potential risk that comes along with it.
With this, when we buy tokens out of FOMO, the necessity expected from us to look beyond the token’s name and gains for the past 24 hours is not apparent and could lead us to a very vulnerable spot, especially if the token has just started its bear run.
We must understand the importance of DYOR as, time and again, we are being reminded that cryptocurrencies are volatile and we must only put what we can lose. Trading is a gamble, and only those who play by the book are the ones who generally succeed.