2 August 2023
6m read
What's the TL;DR because I don't feel like reading long articles...
*Fear, Uncertainty, and Doubt (FUD): The deliberate spread of fear and false information.
You'll hear a number of trading jargon that may sound foreign, whether you're new to cryptocurrencies, the stock market, or day trading Forex. What do the terms FOMO, ROI, ATH, and HODL all mean? It can be intimidating to learn all these new phrases because trading and investing have their own language. However, if you want to stay abreast of what's happening in the financial markets, they might be quite handy.
We've listed some of the key trading terminologies in this article that anyone trading cryptocurrencies should be familiar with.
Although not only employed in relation to trade, FUD is frequently utilized in relation to the financial markets. FUD is a tactic used to discredit a specific business, item, or initiative by disseminating false information about it. Fear is intended to be spread in order to acquire some sort of benefit. This could be a strategic or competitive advantage, or it could be capitalizing on a drop in stock price brought on by the possibly negative news.
FUD is fairly prevalent in the world of cryptocurrencies, as one might assume. Investors frequently take a short position in an asset, and once the position is created, they may reveal information that could be detrimental or deceptive. In this manner, selling short or purchasing put options can result in significant profits. They might even set themselves up in advance using over-the-counter (OTC) agreements.
The information often proves to be inaccurate or at the very least misleading. But occasionally, it proves to be accurate. Always make an effort to take into account all relevant factors. Consider the benefits that people might receive from openly expressing their ideas.
Investors experience FOMO, or fear of missing out, when they rush to purchase a particular asset. Since there are strong emotions involved, widespread FOMO can cause parabolic price fluctuations. The later phases of a bull market are frequently indicated by investors "FOMO-ing" from asset to asset in a game of musical chairs.
Extreme market situations might alter the customary market regulations, as you are aware if you've read our article on Technical Analysis (TA) errors. Many investors may enter positions out of FOMO when emotions are high. Extended moves in both directions may result from this, and many traders who attempt to counter-trade the crowd risk getting caught.
FOMO is frequently utilized when creating social media applications. Have you ever pondered why strictly chronologically viewing posts on social network timelines is typically more challenging? This is connected to FOMO as well. Users would believe they have viewed all the most recent postings if they could view all the ones that have been made since their last login.
Social media platforms intentionally blend older and current posts on the timeline to make users feel FOMO. In this way, consumers continually check back out of concern that they could be missing something significant.
It's simply the cryptocurrency equivalent of the buy-and-hold strategy, and the name "HODL" is a misspelling of "hold." In 2013, a now-famous post first mentioned the term "HODL." The title's misspelling of the phrase was "I AM HODLING."
Holding onto investments despite price declines is known as HODLing. It's also frequently used in reference to investors (or "HODLers") who wish to gain price exposure to cryptocurrencies but, despite admitting they aren't great at short-term trading. Investors that are highly confident in a particular coin and want to hang onto their investment for a longer time frame may also use it.
The buy-and-hold investment approach used in traditional markets is comparable to the HODLing approach. Investors that buy and hold assets look for undervalued assets and keep them for a long period.
This would have been a very successful technique for crypto, as you are familiar with dollar-cost averaging (DCA). If you had invested 100 dollars worth of ETH every month for the past five years, your initial investment would have multiplied by about five!
A term that derives from HODL is BUIDL. It typically refers to cryptocurrency sector participants who keep working forward despite price changes. The main thesis is that despite terrible bear markets, the crypto industry's true believers continue to develop the ecosystem. In this sense, "BUIDLers" really care about the positive effects that blockchain technology and cryptocurrencies can have on society, and they are working hard to achieve this.
BUIDL is a way of thinking that seeks to demonstrate how cryptocurrencies are about more than just speculating; they're also about democratizing this technology. It serves as a reminder to keep working hard and continue creating the infrastructure that may one day support billions of people. Furthermore, BUIDLers are aware that the teams that continue to create with a long-term mindset will probably succeed in the long run.
SAFU was inspired by a meme that Bizonacci posted. It included Changpeng Zhao (CZ), CEO of Binance, stating that "funds are safe" amid unexpected platform downtime. Within the community, the video became very popular.
The performance of an investment can be evaluated using return on investment (ROI). ROI gauges an investment's returns in relation to its initial cost. It's an easy approach to assess how well certain investments have performed.
Here is a formula for ROI. The original investment cost is subtracted from the investment's current value. After that, multiply that result by the original price.
ROI is determined by dividing the current value by the original cost.
However, raw data doesn't provide the complete picture. Other considerations come into play while comparing investments. What dangers exist? What time frame do you have? The asset's liquidity level. Can slippage change the cost of your purchase? ROI is a valuable tool for gauging the success of your investments, but it is not the final indicator in and of itself.
Considering position size while considering investing returns is essential. Check out How to Calculate Position Size in Trading to learn a straightforward formula for risk management.
This one probably doesn't need an explanation, does it? The asset's highest recorded price is known as the All-Time High.
When an asset reaches an All-Time High, it's intriguing to consider that practically everyone who has ever purchased it has made money. Many traders holding losing positions will probably wish to leave the market when their position is near break-even if an asset has been in a protracted bear market.
There are no longer any sellers who are ready to sell at break-even if the asset exceeds its ATH. As a result, some people refer to ATH breaches as "blue sky breakouts," since there may not always be evident resistance in the near future.
ATH breaches frequently coincide with a rise in trade volume. Why? Day traders may also seize the chance to sell at a higher price and earn a quick profit by using market orders.
Does breaking the ATH indicate that the price will continue to rise indefinitely? Obviously not. At some time, traders and investors will want to recoup their losses, and they might place limit orders at particular price levels. This is especially true if earlier All-Time High values are consistently exceeded.
As many investors rush to the exit once they perceive the rally might be coming to an end, parabolic moves frequently result in very abrupt price decreases.
Because of this, it's essential to always control risk and employ a stop-loss.
The All-Time Low (ATL), which is the reverse of ATH, is the asset's lowest price. On the first day of trading, for instance, the All-Time Low of BNB on the BNB/USDT market pair was 0.5 USDT.
The impact of breaking an asset's All-Time Low can be similar to that of breaking its All-Time High, but in the other direction. When the previous All-Time Low is broken, numerous stop orders may be activated, causing a swift decline.
Since the price has never dropped below the previous All-Time Low, the market value might continue to decline and drift ever-lower. Purchasing during such times is extremely perilous because there aren't always obvious occasions for it to stop.
Before even thinking about opening a long position, many traders will wait for a confirmed trend change by an important moving average or another signal. If not, they risk being stranded in a posture that keeps sinking down while holding the bag for a long period.
DYOR is a phrase used in relation to the financial markets that is strongly associated with Fundamental Analysis (FA). It implies that investors should conduct their own due diligence on their investments rather than relying on others to do it. In the crypto ecosystem, the saying "Don't trust, verify" is also frequently used and has a similar meaning.
The best investors conduct independent research and draw their own judgments. Therefore, anyone who wishes to succeed in the financial markets must develop their own special trading approach. Conflicts between different investors could result from this as well, which is a fully normal aspect of trading and investing. An asset may have one bullish investor and one bearish investor.
Successful traders and investors will use vastly varied tactics, and different viewpoints can allow for different strategies. The key point is that each person independently conducted research, arrived at their own opinions, and based their investing choices on those results.
DYOR and due diligence (DD) have some overlap. Before reaching an agreement with another party, a sensible individual or corporation is expected to conduct the necessary research and exercise due diligence.
When logical corporate entities reach a consensus, it is required that they thoroughly investigate one another. Why? Any rational actor wants to make sure the agreement is free of any potential red flags. How else could they weigh the probable hazards against the anticipated benefits?
Investments follow the same rules. To make sure they can account for all risks, investors that are looking for new investments must conduct their own due diligence on the project. If they don't, they won't have control over their financial decisions and might choose poorly.
Anti-Money Laundering (AML) refers to a variety of rules, laws, and protocols designed to stop criminals from passing off their illicitly obtained funds as legitimate earnings. Criminals find it much more difficult to "launder" their cash by hiding it or passing it off as coming from legitimate sources because of AML regulations.
Criminals will constantly try to hide their genuine financial origins. There may be a variety of ways to do that due to the intricacy of the financial markets. Finding the true source of funds can be challenging (though not impossible) due to complicated market maneuvers, derivative goods created up of derivative products, and other market manipulations.
Financial organizations like banks are required under AML requirements to monitor customer transactions and report any suspicious activity. This makes it less likely for thieves to get away with laundering money they gained illegally.
National and international regulations must be followed by stock exchanges and trading platforms. For instance, the United States government's regulations must be followed by the New York Stock Exchange (NYSE) and the NASDAQ.
Institutions that facilitate the trading of financial products must follow Know Your Customer (KYC) or Know Your Client requirements, which require them to confirm their clients' identities. Why is this crucial? Reducing the possibility of money laundering is the key motivation.
Additionally, KYC rules apply to all individuals, not only those working in the financial sector. These rules must also be followed by numerous additional components. Anti-Money Laundering (AML) policies often include KYC criteria as part of their overall framework.
Terms used in cryptocurrency trading can first seem a little puzzling. But now that you are familiar with most of them, you can feel more SAFU when using all these acronyms. Keep HODLing and BUIDLing, DYOR on FUD, and refrain from FOMO-ing into coins that have achieved their ATH.