What does FOMO mean? An analysis of the most common deadly trap in investment psychology

In financial markets, especially in the fields of cryptocurrency and stock trading, there is a phenomenon that often leads investors to make irrational decisions—this phenomenon is FOMO. FOMO stands for “Fear Of Missing Out,” and it is the psychological trap that investors tend to overlook most but has the deepest impact. Once we understand the deeper meaning of FOMO, we can better protect our investment portfolios from impulsive decisions.

Understanding FOMO from a Psychological Perspective: Why Are Investors Prone to Emotional Decisions?

FOMO is not complicated, but its influence on investment decisions is profound. The concept was introduced by psychologist Dan Herman around 2000 to describe the anxiety and fear people feel when they see others profiting. In trading environments, FOMO refers to: when investors see market prices rising rapidly, they suddenly experience a strong impulse, fearing they are the only ones missing out on this trend, leading them to rush into the market without thinking.

This psychological state often results in severe judgment decline. Under the dominance of FOMO, investors tend to ignore fundamental analysis, technical signals, risk assessments, and other important factors, instead blindly following market sentiment. What is the result? Most of the time, they enter at the peak after a significant price increase, only to face losses afterward.

It’s important to note that FOMO is not limited to cryptocurrency beginners. Even experienced traders can be controlled by FOMO under the influence of strong market emotions. This indicates that FOMO is a human weakness, not a lack of knowledge.

How FOMO Manifests in Stock and Crypto Markets: The Truth Behind Market Volatility

In traditional stock markets, FOMO is also common. When a stock suddenly surges due to good news or market hype, a large number of retail investors rush into the market, pushing the stock price to extreme levels. Meanwhile, this FOMO-driven buying can cause drastic changes in market liquidity and lead to significant price fluctuations.

In contrast, FOMO in the cryptocurrency market is even more intense. Due to 24-hour trading, high leverage availability, and rapid dissemination of social sentiment, FOMO-driven price swings in crypto are often more violent. A project might rise 50% within hours and then fall 70% within days—this is the result of collective FOMO emotions.

Even more dangerous, some large market players (commonly called “whales”) often exploit retail investors’ FOMO psychology for profit. They may quietly build positions first, then create buying pressure to cause rapid price increases, enticing FOMO investors to follow. Once retail investors flood in, these whales start selling off, causing market crashes and reaping huge profits.

FOMO vs JOMO: Two Opposite Investment Mindsets

In contrast to FOMO, there is a concept called JOMO, meaning “Joy Of Missing Out.” JOMO represents a completely different investment philosophy.

Investors practicing JOMO believe that many seemingly hot investment opportunities are actually full of traps. They prefer to miss out on projects that might short-term skyrocket rather than risk losses by blindly following the crowd. Long-term investors tend to adopt a JOMO mindset—they are happy to see a popular coin or stock surge because they know they have already allocated their portfolio based on a long-term strategy.

The clash between these two mindsets is essentially a confrontation between short-term trading psychology and long-term value investing psychology. FOMO investors focus on current opportunities and short-term gains, while JOMO investors focus on overall asset allocation and long-term returns.

Practical Strategies to Overcome FOMO: Building a Rational Investment Framework

Since FOMO is a widespread psychological phenomenon, the key question becomes: how can we effectively manage and control FOMO emotions?

First Step: Develop a Clear Investment Plan
Before entering the market, set your investment goals, capital allocation, entry points, and stop-loss points. Once the plan is in place, adhere to it strictly. When exciting opportunities arise, ask yourself: “Does this align with my original investment plan?” If not, regardless of how hot the market is, stay rational.

Second Step: Conduct In-Depth Research
Perform thorough research and due diligence before trading. Understand the fundamentals of the project, company, or asset you are investing in. The more information you have, the less likely you are to be swayed by market emotions.

Third Step: Set Stop-Losses and Risk Limits
Never invest more than you can afford to lose. Use stop-loss orders to protect your positions. Establish a risk management system to ensure that a single trade’s loss won’t destroy your entire investment plan.

Fourth Step: Practice Delayed Decision-Making
When you feel FOMO strongly, pause first. Wait 24 hours before making a decision. Often, after 24 hours, those urgent opportunities have either passed or become less attractive.

How Long-Term Value Investing Counters FOMO Impulses

The most effective way to manage FOMO is to shift your mindset—from a short-term trader perspective to a long-term investor perspective.

Long-term investors resist FOMO because their focus isn’t on short-term price fluctuations. They buy an asset because they believe in its long-term value and hold it for years or even decades. During this process, short-term price ups and downs become secondary.

For example, long-term holders who bought Bitcoin when it was a few dollars wouldn’t feel FOMO from a 50% drop in a month. They only care about their asset allocation in 5, 10, or even 20 years.

Building a long-term investment framework has dual benefits: it naturally diminishes FOMO’s influence on you and helps you avoid the most common mistake in short-term trading—buying at the high and selling at the low.

Final Reflection: Rationality Is Always the Best Strategy

The core meaning of FOMO is a reminder of human weaknesses in investment decision-making. Whether in stock markets or crypto markets, FOMO is one of the main reasons for investment losses.

The key to defeating FOMO is not to eliminate this emotion entirely—because that’s nearly impossible—but to establish a rational investment system to counteract it. Setting clear goals, conducting thorough research, strictly following your plan, and maintaining risk awareness are the most effective weapons against FOMO.

Remember: the best investment decisions are never made at the market’s hottest moments. The investors who achieve the greatest profits are often those who stay calm when others are greedy and stay disciplined when others are fearful. Next time you feel a strong FOMO impulse, take a deep breath, return to your investment plan, and ask yourself if this decision is truly rational. The answer will often help you avoid a costly mistake.