FOMO in Crypto Trading: Why Late Buyers Lose

FOMO, the fear of missing out, is the feeling that a move is leaving without you and that you must buy now. In crypto, where a coin can move 20% in an hour and social media shows every winner, it is a daily test. Evidence from millions of real users shows what it tends to cost.

What the BIS found about retail crypto buyers

The Bank for International Settlements built a new data set on retail holdings of crypto assets. Its bulletin, published in February 2023, reports:¹

• “in the wake of the Terra/Luna collapse and the FTX bankruptcy, crypto trading activity increased markedly, with large and sophisticated investors selling and smaller retail investors buying”;
• using data on major crypto trading platforms over “August 2015–December 2022”, “a majority of crypto app users in nearly all economies made losses on their bitcoin holdings”.

These are results about groups, not a rule for you. The bulletin does not say that everyone who buys after a crash loses. But it describes a pattern that matches the shape of FOMO: strong buying by smaller investors after large, widely reported events, and losses for most users over the full period.

Why attention makes people buy

A mechanism comes from the stock market. Barber and Odean tested “the hypothesis that individual investors are net buyers of attention-grabbing stocks, e.g., stocks in the news, stocks experiencing high abnormal trading volume, and stocks with extreme one-day returns”, and confirmed it. The reason they give: “attention-driven buying results from the difficulty that investors have searching the thousands of stocks they can potentially buy”. Many investors “consider purchasing only stocks that have first caught their attention. Thus, preferences determine choices after attention has determined the choice set.”²

Translate to crypto: you do not review every coin. You look at the ones in the news, at the top of the gainers list, in the chat. Those are, by construction, coins that have already moved. FOMO is buying after the move because the move is what got your attention.

Is it ever right to buy a move?

Yes, and that is part of why FOMO is hard. Research on crypto does find that attention and momentum carry information; see crypto momentum and attention, which describes a study of data through May 2018 and its limits. The problem is not buying strength as such. It is buying strength without a plan: without a stop, with a size set by excitement, at a price you have not chosen.

How to deal with FOMO: a pre-entry checklist

Practical rules, not findings of the sources above:

1. Is this setup on my list? If you did not write the setup before the move, it is not a plan.
2. Where is the invalidation? The price at which you admit you are wrong, decided before entry.
3. What is my size, as a share of capital? Taken from your plan, not from how strongly you feel.
4. Would I take this at the price from five minutes ago? If the answer is no, you are buying the feeling.
5. Place the entry as an order at a level you chose. If the price never comes back, the missed trade costs you nothing.
6. Wait one candle or ten minutes. A deliberate delay is cheap.

Free tools: FOMO in trading: a checklist before entry walks through this, missed the entry: how not to chase covers the moment after you missed it, and the daily check-in shows how many of your trades were outside the plan. Alerts on our Crypto Radar describe where activity is unusual; they are information, not an instruction to buy.

Questions traders ask

How do I stop FOMO trading? Decide entries before the move: a written setup list, a size from the plan, and orders at chosen levels.

Is FOMO the same as revenge trading? No. FOMO follows a missed move, revenge follows a loss. Compare revenge trading.

Does the BIS study say retail traders always lose? No. It reports that a majority of app users lost money on their bitcoin holdings over the period, and that retail bought as large investors sold after two crashes.

Educational material, not investment advice. More in the Trading psychology category.