Mass Formation Psychology: The study of crowds
Mass Formation Psychology: The Study of Crowds

Mass Formation Psychology: The Study of Crowds

Mass Formation Psychology

Mass formation psychology & Herd Mentality

There is too much focus on the mass psychology of fascism before one even starts to explore that topic which for the most part can really change your life, one should focus on Mass formation psychology which could have a profound impact on your life.

Mass Psychology is a grossly misunderstood field and this is why we have come up with the understanding mass psychology series.  It is often confused with the notion of contrarian investing.  In fact, the two only share a few common traits. Contrarians usually jump in and out of the markets too early. These players bail out well in advance of the top and miss on the largest part of the move, jump in too early and reduce their upside gains.  In most cases, these contrarians are fashion contrarians which means that they choose the title because it sounds cool and they usually lose more than they make on a given day or year.

Understanding Herd mentality: The Psychology of Crowds

Mass Formation Psychology is a branch of social psychology. Social psychologists have developed several theories for explaining the ways in which the psychology of a crowd differs from and interacts with that of the individuals within it. Major theorists in crowd psychology include Gustave Le Bon, Gabriel Tarde, Sigmund Freud, and Steve Reicher. This field relates to the behaviours and thought processes of both the individual crowd members and the crowd as an entity.[1] Mob behaviour is heavily influenced by the loss of responsibility of the individual and the impression of the universality of behaviour, both of which increase with the size of the crowd. Wikipedia 

We tend to view mass psychology as taking a position that would even surprise the toughest of contrarians.  We wait for the markets to froth, for a feeding frenzy stage before bailing out and vice versa before jumping in.

Exploring the Essential Principles of Mass Psychology

The leaders represent less than 2% of the population yet take in more than 90% of the profits.

When something is popular, the end is very near. One needs to do the opposite of what one’s emotions dictate when it comes to the markets.

When the masses are nervous and don’t want to buy stocks, then the astute player should start building up a list of stocks to purchase.

You have to learn how to fight the fear of selling out too fast after taking a position, remember it won’t just go up. Most likely it could even go down a bit more or move sideways for months or even a year. The one area you can draw comfort from is this, the longer the sideways action, the stronger the breakout

Contrarian Investing and Crowd Psychology: A Comparative Analysis

Mass formation psychology, aka Mass Psychology, Improves Contrarian Investing Results. Investors that adopt the doctrine of mass psychology correctly will understand how to use market sentiment to their advantage.  Mass psychology takes the principle of contrarian investing and then pushes it to the next level.

Students of Mass Psychology look for extreme type situations. Wait for bearish or bullish sentiments to soar to extreme levels and wait for the markets to move towards the extremely oversold ranges before opening long positions and vice versa

In other words, sentiment should not just be bullish before an opposing strategy is put into play, it should be at the boiling point and only then will the student of mass psychology look for an exit and attempt to take an opposing position to that of the masses

Understanding Mass Psychology: Never follow the Crowd

Mass psychology is the constant analysis of the playing field to determine how the game is being played. Are the rules changing? Have the players become more aggressive or docile? Is the playing field soft, rocky or worse yet on the extremely high and treacherous ground?  One has to take measures at different levels and then compare them to the pattern you have already established from past observations.

Mass psychology is dynamic compared to the methodology most contrarians put into play. Contrarians do not measure their position relative to those of other contrarians.  They only measure their position relative to that of the masses; in doing so, they fail to obtain a vital piece of data.  In, other words, they do not measure the intensity of emotion in their own camp.  Mass psychology states that one should wait for the emotions to surge to the boiling point. After that, one can short or go long the market.  Now if you want to read more on the topic of the  Mass Psychology of Fascism, click here.


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1 comment


Too true. I’ve found myself oh both sides of the coin.
This reminds me of defussion of innovation, the rate new ideas and technology are adopted by people. I can see some parallels with investing. There are multiple stages: innovators, early adopters, early/late majority, and the laggards. The amount of people in each stage is basically a standard deviation graph. With the least amount of people being innovators (far left of graph) and laggards (far right of chart). The majority of people are in early/late majority (middle of the chart).

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