Herding
TheoryDefinition
Following the crowd into trades that are already crowded. Drives bubbles (everyone buys at the top) and panics (everyone sells at the bottom). Behavioral basis: social proof, career risk for managers, and the "comfort" of being wrong with the crowd vs. right alone.
The contrarian play — fading extreme sentiment — has been one of the most consistent edges in markets, but requires the temperament to hold positions while everyone says you're wrong.
The contrarian play — fading extreme sentiment — has been one of the most consistent edges in markets, but requires the temperament to hold positions while everyone says you're wrong.