Futures, Falling Knife and FOMO
Do you find crypto terms hard to understand?
If your answer is yes, then this series is for you. Crypto Terminology: A to Z helps you decipher the alphabet soup of crypto terms and definitions, arranged in 26 bite-sized portions for you to chew on easily.
Today, we explore words that begin with the letter F.
Let’s start with Futures Contract.
The process for futures trading is similar to perpetual trading. In both cases, traders can open long and short positions, and implement proper risk management techniques. Regardless of contract type, there are risks related to market volatility involved in any form of trading and investment.
Driven by market hype, some traders may be inclined to trade volatility or “catch a falling knife“.
The phrase “catch a falling knife” describes a trader’s attempt to buy a dropping asset at, or near, its low. In an ideal world, if a falling knife is perfectly timed, traders who buy assets priced at the bottom of a downtrend could very likely make substantial profits.
On the flip side, an asset being on a downtrend does not necessarily present opportunities to buy. There is no knowing how low prices can really go.
A word of caution: be wary also of FOMO.
Short for “Fear of Missing Out”, FOMO is a term often floated around in the crypto world. Because of FOMO, many crypto traders act on emotion instead of having actual strategies or plans.
Looking for trading patterns is a good way to determine entry and exit points. While this might sound easy enough in theory, actual trading is difficult and risky without reliable strategies and discipline. Instead of trying to “catch a falling knife”, or being caught in the FOMO cycle, traders are encouraged to create their own sets of rules for crypto trading, including:
- Paying attention to technical indicators and charts for confirmation of trend reversals
- Securing profits and limiting losses using smart trading tools like TP/SL on Bybit
- Staying disciplined and sticking to your strategy — regardless of emotion
How do you best manage your emotions when trading? Share your trading tips here.