For those of us who trade, learning about technical and fundamental analysis is one of the essential things we have to do, because being successful in the markets, despite how volatile and seemingly erratic they may seem, is not a matter of mere chance, but of a causality that most people usually do not understand well. But as true as what has just been stated, is the fact that emotions also play a major role in trading and investments.
The causality in the market prices of the cryptocurrencies
If we understand that everything in the world of trading is due to causality, that is, that every price movement has a cause, and that said cause is not merely fortuitous, we will have a large part of the road to success forged; but what is really important in all this is that, together with the knowledge of the principle of causality, we must also have full control of our emotions in the markets if we want to be truly successful and obtain great profits in them.
Because as I have mentioned in previous posts, the cryptographic markets (as well as the markets of any asset, be it stocks, commodities, etc.) are moved by laws of supply and demand, but also by pure and simple speculation. According to the laws of supply and demand, if the supply of a cryptoactive exceeds the demand for it, its market price tends to fall; and if the demand exceeds the supply, then the price of said cryptoactive becomes bullish. In this sense, the whales (as I mentioned in my previous post Meaning of being a crypto whale) are mostly responsible for most of the market movements, but the other culprits after them are FOMO and FUD, which actually happen due to mere market speculation.
What is FOMO and what is FUD
As all of us who are in some way knowledgeable about financial matters know well, FOMO stands for Fear Missing Out and it is the fear of inexperienced investors and traders of missing out on an apparent opportunity in the markets.
While FUD stands for Fear, uncertainty and doubt, and it can be understood as the fear or uncertainty of staying within a project or crypto asset of which everyone seems to say, and everything seems to indicate, that it will fall into the abyss.
As you have probably already realized, FUD and FOMO basically refer to the misdirected emotions of traders and investors when they operate in the crypto markets; and these occur due to lack of knowledge and ignorance of the laws of the market and the lack of personal self-control of the masses who do not know what they are really doing in the markets. However, although both terms (FOMO and FUD), refer to some extent to the fear that investors may feel, they constitute two different types of fear.
FOMO occurs, for example, when a cryptocurrency is making such an upward and so pronounced movement for days, that it makes it seem (in the eyes of inexperienced traders and investors), that the crypto asset cannot fall at any time; and that it can only go up and up. And it is in this erroneous perception of the market situation that inexperienced traders and investors buy at points where they should refrain from trading or; if they are already in a buying position, they do not get out of the movement in time and do not they take profits on time, which ends up generating losses for them in the end.
FUD, on the other hand, occurs when, to cite an example, an investor or trader runs out to sell a cryptocurrency or project because it has recently read negative reviews about it on social networks. In this kind of example, the person is not analyzing on its own whether what is really being said about the project in question is true or not, instead of that it is simply reacting with panic to a situation; and by not reasoning on its own, he is exposing himself to make serious mistakes that lead to financial loss.
Having said that, we can deduce that FOMO is the irrational fear of not winning in the markets by no taking advantage of an opportunity at the right time; and FUD can be understood as the irrational fear (or terror) of being trapped inside a project or cryptocurrency that seems it is going to cost $0 at some point.
The fear that drives the FOMO is usually a greedy fear; you fear to stop winning. And the fear that drives the FUD is the fear of losing money.
The best way to avoid FOMO and FUD.
Basically, the best way to avoid FOMO and FUD is to keep your cool in short.
But knowing that the prices of crypto assets move by the laws of supply and demand and by speculation does not prevent many people from panicking when prices go up and down; because they really don't understand that what determines whether they can win or lose in the markets depends more on their own emotional self-control than on the intrinsic factors of the markets per se.
Because knowing is one thing, but understanding is something very different. And this is because they do not analyze and do not know how to differentiate when a movement in the price of a crypto asset (either bullish or bearish), occurs in a healthy and natural way, from when it occurs in the opposite way (that is, when produced unhealthily and unnaturally)
With that being the case, it is understandable that they fail to keep their cool in the face of market volatility (and this is especially true when it comes to crypto asset markets). So learning to keep a cold head (and by cold head, I mean knowing how to keep our emotions under full control), is not an easy thing.
However, I will dare to give some recommendations to learn to have emotional dominance in the markets.
Recommendations to learn how to avoid FOMO and FUD
I want to clarify that I am not recommending anyone to invest or stop investing in the crypto markets or any other kind of assets; since this is something that is the entire responsibility of each person; therefore, I am simply giving recommendations for those who have already decided to invest in the markets and do not have any notions of the matter.
That said, my advice in this regard is:
1. Learn all you can about fundamental analysis, and especially about technical analysis:
Do an habit of reding analyse news and financial reports; and Learn in depth about the use of indicators, bullish, bearish, resistance points, support points, patterns, etc.
2. Learn to manage your capital, diversify your investments and your trades:
Never put all your capital in a single crypto asset, instead, invest in several options that you have previously studied in depth.
3. Never put all your capital in crypto assets and never invest money that you are not willing to lose:
Because remember that financial markets (but especially crypto), are highly volatile and risky, and there is always an inherent risk of losing everything in the process.
4. Never trade or invest in something just because of what others say:
That is, never invest (or not to invest) or operate in the markets because of what others say, no matter how expert they may seem. Remember that it is your money that you are putting at stake when you operate and invest in the markets and therefore, only you will experience losses or gains depending on what you do or do not do in them.
Therefore, if you are going to invest or stop investing in a crypto asset, do it based on your own analysis. Hence the aforementioned importance of learning everything you need to analyze the markets properly.
5. Create your own trading and investment method:
Define your own method, try it on demo accounts, and then patiently in the markets; and be disciplined in its use so that you can polish and refine it properly as you go.
6. Always define and respect your Stop Loss and Take Profit points
Never get out of what you know is correct due to hunches or irrational opinions. Take profits when you have stipulated to take them, regardless of whether or not the price of the crypto asset appears to be going To The Moon; and take losses when you have stipulated to take them, regardless of whether it seems that the situation will begin to reverse at any time.
Although what I just mentioned in point 6 may seem very strict, it is the best way not to fall into traps and vices in the markets. Because in one way or another, as we well know, there is no way to predict 100% what will happen in the crypto markets from one moment to the next; and acting with discipline, we will know how to better control our capital when operating them.
7. Never enter to invest or trade in a crypto asset that seems to have risen or fallen too much:
That is, never invest or operate an asset whose price movement seems to have a very vertical behavior, since this is a symbol that something abnormal and unnatural is happening with said cryptoactive.
If you do, you will run the risk of ending up losing your money because you will surely being the victim of unpredictable and speculative movements far away of normal. In these cases, no reasonable technical analysis is possible, therefore, it is better to get out or stay away from things that seem too good to be true.
Resume:
FOMO and FUD are two important factors in the markets, and learning to dominate them is part of the art of being a trader; therefore, we must learn to manage our emotions and this can only be achieved by knowing more about the markets and knowing ourselves better, since this will make us wisers and smarters when we acting respectively.
In this sense, all the recommendations that I have given in this post are especially useful in trading and investments so as not to fall prey to emotions in volatile markets and, therefore, to avoid making mistakes that can perfectly be avoided.
However, they are not the only recommendations that can be given in this regard; If you can think of some others, please write them in the comments. See you.
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