FOMO and FUD: Psychological Traps of Trading

2023.08.28 2023.08.28 FOMO and FUD: Psychological Traps of Trading

Oleg Tkachenkohttps://www.litefinance.org/blog/authors/oleg-tkachenko/

 What is FOMO and FUD: our fears and the influence of others. Why do we think that other people live better than we do? Psychological manipulation and the fear of missing out. 

FOMO stands for fear of missing out, it is the fear to miss something important. FUD is a method of manipulation that aims at causing anxiety by undermining the confidence in people’s decisions taken based on logical conclusions. Read on more about these terms, about the reasons for FOMO and FUD, and how to overcome them in trading. 

FOMO and FUD: why do we think that others have a better life? 

Early autumn. A warm evening. You are making yourself comfortable on the sofa with a cup of tea or hot chocolate, cover your laps with a rug and anticipate watching your favorite series or reading something nice. In between the episodes, you check your social media accounts. Some people feature curiosity in social media, others like showing off. And, watching your friends having a nice time in the sea resorts, in night clubs, or traveling abroad while you are staying at home, you think about if you do everything right. 

You forget about the series or the book and start thinking about the opportunities you missed. “When did I make a mistake?”, “Why have my friends achieved more than I?” Little by little, your self-reflection turns into a kind of envy. Although you will never find the answers to these questions, your mood is already killed.

What is FOMO and FUD: cause and consequence 

The psychological state described above has a special term, FOMO (fear of missing out). This term was added to the dictionary of psychological terms only in 2013 and is defined as “a pervasive apprehension that others might be having rewarding experiences from which one is absent.” 

FUD stands for Fear, Uncertainty, and Doubt. It is a method of psychological manipulation aiming at making the majority uncertain about the future. The matter is that the information may not be false, but it is presented so that it is interpreted by the audience in a way that manipulator wants for monetary purposes only. It is especially acute for cryptocurrency traders, and there is often a hype created to pump or dump a digital currency.

FOMO syndrome has been magnified by new technologies. The Internet, social media, and other modern means of communication broaden our scope for information. Before the advent of the Internet, people learned information from radio/television/ or from other people, but now we can learn about everything that happened instantly without leaving home. In social media, blogs, people can say whatever they want without fear of consequences. While some people are showing off their capacities in social media, other people start doubting in their capacities. 

Reasons for the FOMO syndrome: 

• Curiosity. People are usually interested in what others are doing and how they are living. And doesn't matter whether these people know each other. Sometimes, the success of your friends, who you used to be on the same level (school, college) causes a stringer pang of envy. 
• Common tiredness and unwillingness to give up habits. The habit of constant monitoring news bands, forums, and social media develops into an obsession and addiction. It doesn’t matter how much time is wasted, it doesn’t matter that the information is not important and will be instantly forgotten, it is the process that matters. And somehow invisible is the fact that this waste of time does not make one feel happy or satisfied. 
• The problem of choice. The scope for information is constantly broadening, increasing the number of different options of anything. A constant need to make decisions is exhausting. A person can’t see obvious advantages and disadvantages of a particular choice, selecting eventually the least attractive option; and, next, comparing own achievements with others pushes himself or herself for the choice that is not perfect. 
• Trying to have everything done all at once. When people have so much choice and they can’t decide what to choose, they want to say yes to everything. When they don’t succeed, they look at the others and get the wrong impression that everybody can cope with multiple tasks well, so, they can too. A spirit of the contest is a good thing, but people, who have the FOMO syndrome feel anxious because of it. Many people feel like they don’t invest enough energy or time in exploring new topics or interests due to it 
• The wish to be the best, or, more precisely, not be the worst. 

Two surveys conducted in 2013, in which about 3,000 people took part, showed that the fear of missing out arose among those who had a low life satisfaction. Personal failures, first of all, loneliness, forced people to use social media and watch other people’s lives. This could partially result from loneliness, just like a hungry person always wants to eat, so a lonely person always wants communication. 

Results of the FOMO syndrome 

• Following the majority. A new person enters a new environment with new ideas. Next, having more of the self-doubt, people start watching what everybody around is doing. It is good to learn the experiences of professionals, provided that the approach is wise. Attempts to just blindly following the majority will result in a failure. Market-makers always want to manipulate the majority. 
• Psychological problems. Depression, anxiety, irritation, low life satisfaction, the self-doubt, the gnawing sense of inadequacy.

The FOMO is often called common envy, but this is not exactly so. Envy is frustration resulted from someone else’s success or well-being. FOMO is when you compare your achievements with the achievements of others and blame yourself for being not so successful. One of the major symptoms of the FOMO is the compulsion over exploring what other people have done or achieved that is followed by irritation (hurt ego), feeling that one’s needs aren’t met and an own choice was wrong. 

FOMO and FUD in trading

You can come across the FOMO syndrome in trading as well. This results from ample information that is easily accessed. Both a beginner and an advanced trader come across those, who are more successful. Therefore, there comes an illusion that everyone else is doing everything right, everyone’s getting these great trading opportunities and winning trades only, everyone except you. Your confidence is undermined, you doubt your decisions, your self-esteem goes down, and the willingness to do something, to analyze to develop your skill is also growing weaker. Instead of focusing on trading decisions, you (especially if you are a beginner) focus on yourself and your “bad luck”. 

FOMO and FUD often go together in trading. In practice, it works like this: 

• You see the trend for a currency pair is growing. The price is rising, the hype is growing, fueled by the FUD information. Its goal is to make you doubt your decisions. The reason suggests that you shouldn’t enter a trade in this situation. But the FOMO effect makes you take a decision that is based on the fear of missing the profit. You think you can predict future price movements. You forget about risk management, about your trading course. You enter a trade at the high. 
• The market rolls down. And again, fearing to miss the profit, you don’t exit the losing trade, “What if this is just a correction?”
• At the very low, you realize that you have been misled. And the responsibility is only on yourself. 

One of the means (sources) of the FOMO is social media and forums. Almost any Forex website writes about the opportunity to gain 100% a year and more. It is obvious that this is a marketing hook. But when you come across this information every day, and you keep on losing, you start having doubts whether you do everything right. 

Trying to find out what is wrong, you come to trader forums and chat with more successful traders. And here, the situation is getting worse. The trouble is that you come to a forum not because you are eager to learn something new, rather you want to compare your performance with others and to prove that you are better. And when you don’t reach your goal, the FOMO syndrome grows stronger. 

How to overcome the FOMO in trading or reduce its influence: 

• Alter your viewpoint on some things. First of all, focus on yourself, your targets, your trade plan, your ambitions. Other people’s life seems better form outside. If someone seems happier to you, this doesn’t mean that you know all the information. People tend to share a more polished version of their lives, often centered on the success, and so, what’s the point in comparing yourself with anyone else. 
• Set long term goals and pursue them, do not regret what you have done. If you want to make money today and go to the sea tomorrow, just do it! But if you didn’t plan to go to the sea, it means that it was not your actual goal. If you have seen your friends at the sea and suddenly want to go there, do not regret the past, set goals for the future and fulfill your dreams. 
• Spend less time on the Internet and more time on live communication. You will learn more information in the process of live communication. For example, you can learn someone’s experience of achieving success. 
• Learn to prove your point of view by giving reasons. At least, this will help you to raise your self-esteem, and a self-confident person won’t look back at the future or compare himself/herself with anyone else.
• Look for reasons for a positive mood. The FOMO syndrome often manifests itself at moments of pessimism and depression. That is why try to raise your mood with some pleasant little things.
• Do not use social media. Give up social media unless it hinders your regular job or trading. Friends can connect you via phone, colleagues – via messengers. You will spare much time 

Psychologists recommend people suffering from the FOMO syndrome to employ common techniques: to forget about social media, to change up your environment for some time. It is important to focus on positive things, trying to forget about negative ones. However, psychologists say nothing about how to detect this syndrome referred to as psychological problems. It is not either clear how to implement most of the recommendations. 

Another recommendation was offered by a Nobel prize winner for economics, Herbert A. Simon. In plain language, it sounds like this: we do not choose the best option, rather, we choose that is suitable for use at the moment. We just can’t process all the information available and we will only be exhausted if we are constantly looking for the best. Human resources are exhaustible, so, it makes no sense to try to make the best decision, and afterward, to compare your results with other people’s and feel mean about yourself because your choice wasn’t ideal. 

And the final recommendation is to use a pen and a sheet of paper. Psychologists recommend asking yourself a few questions and make up a plan of action according to these questions. If you describe the reasons for your feeling of dissatisfaction forcing you to compare yourself with the others, you will see a plan of action that will help you to change the situation. 

It is simpler to manage the FUD situation. You shouldn’t let the majority to influence your decisions, you shouldn’t take decisions in haste, you should analyze the situation and the factors that affect it, use reasonable thinking and never regret about what you have done. 

Conclusion. The FOMO syndrome is often featured by those, who are not satisfied with their lives. People dependent on the opinions of others often fear to miss something important, wasting much time on the search for this “for this something important”. Do not try to say ‘yes’ to everything, do not try to repeat what others are doing. Every person is unique, so there is a point in following other people’s success only in order to learn something. 

You are just you, your life is just your life. You are a personality! Remember that only you are responsible for your success, and this is not anyone else. Do not regret something that is already in the past. Plan your future and forget about envy and FOMO. This is only you who is to take the decision and no one else. Do not compare yourself with others, enjoy your life and your life will become even brighter. I wish you happiness, kindness, optimize and, of course, I wish you successful trading! If you are interested in the psychology of trading, you can learn more about it in another overview devoted to collective trading, affiliations, and affirmations.

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