Between FOMO And JOMO

Why do crypto investors get into psychological traps?

The rule which is well-known even for those very far from any type of investing, “sell high, buy low” seems simple only if you have never tried to do so (or if you can see the future). At the same time, the World of Crypto can be hard to navigate from a psychological point of view, simply because its high volatility can really get on people’s nerves.

Another reason is that trying to keep up with all the latest developments (which on its own is crucial) and hearing about huge sums of money in other people’s profits might lead to a sense of urgency and some poorly thought-out decisions. Being scared of not taking advantage of an opportunity is called FOMO, or fear of missing out.

Unfortunately, this type of behavior is often used by scammers who create an illusion of scarcity and high demand for a particular token, for example, and get people to invest in their project without a thorough analysis.

Interestingly enough, there’s also JOMO, the joy of missing out, which usually refers to being glad of not being a part of a crash. In this hard-to-navigate sphere, it is essential to keep a sober mind and not be influenced by emotions, and that is exactly what we will try to figure out in this article.

What are the signs of getting into a psychological trap?

1. Crypto investing outside one’s means (if the potential loss of this money is unacceptable).
2. Excessive checking on prices and feeling guilty for missing opportunities to gain profit.
3. Trusting just one source without additional checking, no matter how trustworthy it seems.

What are the main psychological traps?

1. Cognitive biases
   
   These are the mistakes connected to the thinking process that is common to all people. Confirmation bias makes us only trust the informational sources that tell us what we already believe in on the subconscious level. Optimism bias leads to thinking that a good outcome is more likely than a bad one, even if the chances are 50/50. And an anchoring bias is when we believe the initial information we got as an objective starting point (for example, the price of a token when it was first bought).
2. Bandwagon effect
   
   When we hear news about a particular project constantly, this might cloud our judgment: the classic FOMO effect.
3. Mental accounting
   
   We sometimes tend to treat earnings differently if we got it not the traditional for us way. For example, if a person is used to earning it at work, they might think that a profit from selling crypto is “additional money” and treat it less carefully.
4. Halo effect
   
   It means that a person gets emotionally attached to a coin or a particular project and ignores the negative things that come with them. It is a bit similar to the endowment effect when we think of something higher just because we own it.
5. Being too confident
   
   Some investors tend to think that their intuition is very good and fail to fact-check properly.

What advice can help crypto investors to avoid these traps?

1. Always have a strategy
   
   Going with the flow is not a good plan when it comes to crypto investing. Even though flexibility is necessary, knowing exactly what you are trying to do (for example, whether you want to trade or invest long-term) is equally as important.
2. Use several trustworthy sources
   
   Listen to experts but always do your own research.
3. Keep a record of your crypto investments
   
   You can have a table with all the necessary information: not only the numbers, but your thoughts behind the actions, too (why you bought or sold something, and whether it was a good decision in the long run). It will make learning more efficient.
4. Be kind to yourself
   
   It is impossible to always be right, so try to not be harsh on yourself when something inevitably goes wrong. Remember what you love cryptocurrency for.

Conclusion

When it comes to investing in crypto, which is still a relatively new and highly volatile sphere, not only hard facts and knowledge matter. Investors have to deal with emotions a lot trying to navigate in the sea of unpredictable numbers and an abundance of news. That is why it is worth carrying out psychological reality checks from time to time no matter if you are a beginner or a pro.

Make sure to check our article if you would like to know how to get a crypto portfolio.

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.