The herd behavior and trading
The unusual price action seen in Bitcoin last week has brought up the issue of the herd behavior in trading.
No doubt that the hype around BTCUSD increased in recent week and it seems like every third trader I talk with is an expert on cryptocurrencies.
What is it the drives people into trends right when they are about to turn?
Humans are hardwired to think and act like a herd.
Nobody wants to be an outcast. No body wants to be alone.
We tend to dress the same, follow the same path (school, college, job etc..) and talk the same (slang).
In real life there’s nothing wrong with blending in and being a part of a large group.
But it trading it can be disastrous
When people jumped into BTCUSD last week when it was trading near 2500, there was no real reason to do so.
It wasn’t based on Price Action, it wasn’t based on Fundamentals, It wasn’t even based on a tip.
It was simply based on the desire of being a part of the trend and the fear or missing out….
Well, that didn’t work well for them right?
Read more about Bitcoin, trading psychology and whether or not this can happen to stocks also.
Also in this week’s newsletter — Bearish setup on Dow Jones, Oil’s analysis and Dollar Index boosted by “Rate Hike scenario (what does it mean for EURUSD).
