Why missing trades on crypto is not only acceptable but beneficial to your trading strategy.
Trading cryptocurrency has not been without its stressors — trying to understand a market with different methods, staying up late with movements 24/7, or missing out on a move because you finally fell asleep or just trying to live life in general. Trading and investing in crypto can be greatly rewarding but often unforgiving.
As someone with my own business, two other jobs, volunteer work, as well as being both a husband and a father, time is of the essence and every second matters. I’ve been trading successfully but not without its bad trades or more importantly in this post — it’s missed chances.
This is called “missing out” as you would expect. Most of us don’t think about missing out without the concept of FOMO, or the Fear Of Missing Out. We always hear about FOMO, usually in a negative context for trading as someone FOMOing into a trade. You can really screw up your portfolio easily by FOMOing into a trade, which I wrote about last year. Even if a FOMO trade goes right, it usually serves as a means of positive reinforcement to encourage it again, which is playing with fire.
Despite the fact that FOMOing is strongly discouraged and the object of embarrassment for those trying to humiliate you, what also seems to be discouraged is the reality that we do miss out and how that’s not always a bad thing. Without a doubt, we always want to be in a trade that goes our way. But that rarely happens consistently. There is a solace to missing out — or SOMO. We should be okay with missing a great trade, both as a stress reducer and for a healthy portfolio.
So what is SOMO?
The Solace of Missing Out — or SOMO — is the bittersweet contentment of missing a trade that could have otherwise placed you in a better position. There are several factors in order to see SOMO. First, we have to miss a trade that would have helped our portfolio — usually that’s seen when we haven’t made any bids and there’s a huge green candle. Second, some sort of regret, sadness, or even pain is involved. Missing out is not fun as you start to think “well my portfolio could be up 10% if I made that trade” or “I wouldn’t have lost money”. If you are using money you can’t afford to lose (and don’t ever do that) it can cause exponential stress on that missed opportunity. Third, and almost never talked about, is the peace and contentment from missing out.
Wait, what? Yes, that’s exactly right. Missing great trades should be acceptable and can be beneficial to your trading lifestyle.
FOMO: what happens and why it doesn’t work
The fear of missing out usually works like this — you see a plausible outcome via your own observations or someone on CT. Then you realize that XYZ coin can move a certain direction and if you don’t act within a specified timeframe, you will lose that outcome. So you create the self-fear that if you don’t enter a position (or leave a position) that plausible outcome will leave you behind. That’s FOMO. Now let’s look how completely unrealistic this is by breaking it down:
- You discover a plausible outcome: you found that price action could manipulate a certain direction. What’s likely most of the time is this is preceded by desire of movement instead of risk management or any real technical analysis, where we decide a predictive move by our emotions instead of our own trading plan or rules. Even if it looks like a possible breakout, the decision is usually based on emotion. Seeing this because of a random CT chart makes this so much worse. If you haven’t considered avoiding CT setups, ColdBloodedShiller has a great article on why Crypto Twitter can severely hinder your trading.
- A specified timeframe: act fast! Usually there is a limited amount of time to act. The clock is ticking. The limited time provokes you to analyze your trading plan as a TL:DR snippet and thereby losing its purpose, once again relying on emotion.
- Fear itself: FDR quotes aside, a formal definition of fear is “an unpleasant emotion caused by the belief that someone or something is dangerous, likely to cause pain, or a threat”. Taking this and expanding, the nonsense here for trading is that we FOMO into trades because if we don’t, that will be dangerous, cause pain, or be a threat. Now I’m not sure about you, but at least two if not all of these descriptors are absurd for a trade. Missing a trade will very unlikely not be dangerous or threatening, and extremely unlikely to cause pain, especially if risk management is involved. But FOMOing can be all three: dangerous because you can lose so much if your wrong, pain because of what you lost, and potentially dangerous if your wrong (try explaining to a spouse why you lost $10k), or even dangerous if your right (the positive earlier that “playing with fire is safe”).
Now we have an idea of how silly it sounds, but here are some practical examples of FOMO in action:
- The quick bid: this is the split second trade you see because of a price movement. You have your trades ready on screen and you quickly make a trade without letting your left hand know what the right hand is doing.
- The revenge trade: this can be FOMO if you have just lost a trade and you want to “double or nothing” either by reinforcement that you feel you’re correct or you want to gamble to get your money back.
- The bandwagon trade: this trade isn’t too restrictive by time but from the basis of being with the crowd. No one wants to “be that guy” that misses a move that everyone is talking about. (**cough*** LEO ***cough**)
- The clout trade: this one isn’t usually done by missing out on profits but instead by missing out on brownie points. Pride gets in the way to make sure everyone knows your cool. And if not, that’s what the delete button. Make sure it’s extra convenient that you post a chart on CT.
With all this you can see how ridiculous it sounds to FOMO based on the description. I don’t want you to feel dumb for doing this however. Everyone, including me, has done this and even disciplined traders let this slip on occasion. What I want to show is that it can be cured with SOMO.
What SOMO can do
- Help you learn: when you miss a trade, you don’t need to reflect on the results of that trade on your portfolio because you never executed a trade. However, that extra time can be used to see how that opportunity can be seen in the future. Always having the ability to learn or modify your understanding of chart analysis is key to staying successful.
- Help you realize not every move is important: looking back at a missed opportunity, often times you can see one of two outcomes — either the trade retraced significantly to make your original reason for FOMO invalid, or that the missed opportunity provided more peace of mind because you weren’t in a trade that due to FOMO you would have been too emotionally invested in the first place.
- Help realize your emotions are in check: not FOMOing helps you realize and reinforce the fact that emotions can destroy your trading performance. SOMO helps you understand the emotion of having peace knowing your portfolio is in check and you don’t succumb to the next big trade.
- Shows their are consequences to forcing trades: this is similar to the first point of learning — that by being on the sidelines you can see a would-be FOMO trade gone wrong and understand why it would have been a bad trade.
- Shows you to focus on the next move, prevents blindness from a future opportunity: staying out of a fear induced trade helps give more clarity for the next trade. The most successful trades are typically the ones you see the clearest.
FOMOing can wreck your portfolio but some of the most beneficial things for your trading can be missing out if you are unsure of the outcome. Capital preservation has one thing that keeps you from being fearful — that your portfolio is not going to get smaller because of a missed trade.
This was the first half of a small series about SOMO, the solace of missing out on trades. In the second half, we will take a look at the uptrend of Bitcoin from $3200 until now — which is prime real estate for FOMO, and see why even if things are continually bullish why it’s still bad to FOMO, but also how to combat it, get back into the game, and counter act it was a successful position.
About Crypto Otsukimi
Crypto Otsukimi is a Writer and Analyst that is passionate about all things crypto and tech. His formal research experience made it possible to be a self-taught cryptocurrency trader.
Otsukimi focuses a lot on technical and fundamental analysis, with a practical emphasis on how crypto is an ethical step forward in finance and technology.
Some of his background includes professional photography, mobile development and trading bots, and planning humanitarian projects in Southeast Asia.
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