Unless you lived in a cave during 2020 (many of us did to help control the spread of COVID-19), then you must have noticed the exponential rise of Bitcoin. In January 2020, the virtual cryptocurrency’s price languished at $8,000, and a year later, the price of a single Bitcoin (BTC) reached a record high of approximately $33,500.
It’s only natural that you feel left out of that rush, if you’d invested $10K, you’d have made a 400% return. Even a fantastic return of 1% a day trading FX would leave you short of this phenomenal result.
Suppose you didn’t invest in BTC during 2020. In that case, you might have experienced emotions that have left you confused, regretful and angry (with yourself). Even if you’d bought BTC in October at $12,000, you’d have banked considerable profit.
We experience emotional pain as investors and traders, and trading mentors often call the feeling FOMO (the fear of missing out). This phenomenon occurs when you invest or trade securities because you fear that the market is moving and you’re getting left behind. You abandon all reason and research and become guided by your gut feelings. As BTC continued its stratospheric rise during 2020, there will have been times when traders thought there was no momentum left. But the virtual currency just kept on rising.
When BTC reached $33,500, you might have concluded the price was too high and must fall, but you remain fearful that you’re missing out so you become tempted to buy in, mainly because the internet is awash with predictions that the crypto coin could rise to $100,000. But as many of us have learned to our cost; “markets can stay irrational longer than you can stay solvent.”
Ironically and with perfect timing, BTC crashed during the London trading session on January 4, 2021. BTC slumped from a daily high of $32,500 to $28,200, a collapse of -13.23% inside three hours. There’s the reality of trading such a volatile asset where 5% of investors control the market because they own 95% of the coins.
If FX currency pairs crashed by such amounts or operated in such wide ranges each day, international commerce would grind to a halt. You’d get no leverage from your forex broker, and the margin you’d need to trade would prevent most traders from trading.
The bottom line is that none of us knows what markets will do today or tomorrow. We can only make our judgment based on sound analysis, including a recent performance history while ensuring our strategy and money-management are sound.
It’s not just BTC that left many traders feeling marginalised during 2020. Tesla’s price (up more than BTC in percentage terms in 2020) launched like the rockets Elon Musk puts into space, while the NASDAQ 100 rose by close on 60% from the March 2020 low to a record high. If only we’d have all seen this coming and bet the house on it?
How to control your greed and fear of missing out
Don’t kick yourself for missing out and don’t hide these negative and harmful emotions; recognise that price movement patterns will occur continually and examine why you experience negative emotions. Then concentrate single-mindedly on exercising your trading plan.
You’re not a cryptocurrency trader, and you don’t buy equities. Don’t lose sight of the fact that investors who’ve bid up BTC and Tesla’s price are buyers, not sellers. Unlike you, most investors have no skills or procedure in place to short stocks or FX currency pairs. Whereas, you can thrive in falling and rising markets.
Investors do OK by following the herd when markets rise but consider how they behaved when markets collapsed in March 2020 as pandemic fears gripped the markets. Did they hold and ride the storm out? Most likely they panicked, sold up and feared when to re-enter.
Then imagine how new investors buying BTC on the morning of January 4 felt as their investment collapsed by over 13% in three hours. They finally bought into the hype and immediately suffered significant losses and most likely margin calls.
Stick to your trading your plan, ignore the noise and chatter
You’re developing lifetime skills to buy and sell FX, commodities and equity indices. You’re learning how to build your trading method while underpinning all your decisions with sound research and analysis. You are light years ahead of buying into hype and mania and taking a punt based on hope. You need to develop your strategy after identifying which market and what securities you want to trade and stick to your plan. Ignore the noise of other markets, stick to what you’re good at, don’t kick yourself over hindsight trades you could have taken with the benefit of a time machine.
