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Herding

Copying what the crowd is doing because the crowd is doing it, rather than because your own process says to.

Herding is rational up to a point. Other participants know things you do not, and trends persist because people join them. It stops being rational when the crowd becomes your only evidence.

In practice it means buying because a ticker is trending in your feed, sizing up because everyone in the chat is long, or abandoning a system because it is unfashionable this quarter. Herding also creates crowded positions that unwind violently, which is where a short-squeeze or a fast liquidation cascade comes from.

The useful discipline is to separate the observation from the decision. Note that the crowd is positioned one way, then ask whether your own setup is present. If it is not, crowd positioning is information about risk, not a signal.

Related: social-proof, fomo

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