Understanding Mass Psychology; the difference between profits & losses
Understanding Mob Behavior: The Key To This Topic Is Mass Psychology

Understanding Mob Behavior: The Key To This Topic Is Mass Psychology

Mob behavior

Understanding Mass Psychology or Mob Behavior

Mass Psychology is 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, and 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.

Wikipedia makes the following comments regarding mass Psychology or Crowd psychology

Crowd psychology, also known as mob 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.

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.

 Key  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 an investment is viewed with disdain or frowned up, then the time to open a position is close at hand.

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

Mass Psychology Vs Contrarian Investing

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. 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 it 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.

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