Have you ever had the experience of being swept up by group think? If you ever attended a large rock concert, I'm sure you had. It is a way of feeling good enjoying and being at one with the crowd and quite simply going a bit crazy.
Group think is where you are being swept up in agreeing with the crowds whether you normally would or not. Therefore it becomes the best concert, the funnest party and you lose a part of your control. I do not know the psychological or physical term or which endorphenes kick in, but it's evident result is undeniable; you're feeling great, everything is what you want and it lasts until the event ends and you are once again alone with yourself. Then it is noticed the next day or hour, like a hangover, along with the thought: "What was I thinking?"
It happens at rallies, parties, or any large feel good crowd and you don't even have to be there as long as you are all watching the same stimulus. TV broadcast for instance. Politicians love it, because they get a lot of "feel good" agreement to whatever they're saying, boosting their own egos or narcissistic needs.
It also happens in trading. We are all connected by computers and we are in a large virtual concert hall where there are many venues of equally large crowds. How do we know? We watch the ticks and level II giving us the indicator of whether the stock is accumulating or shedding interest from other traders. If it's an exceptional big move, other traders pile on and take the trade faster into another realm and us along with it. The elation and the need for sharing especially point to the group think mentality: "Did you see that, wow, it's the most I've made all week, got in here/out there", and we become one sharing the moment, the elation, the gratis.
Group think of that sort is relatively harmless. But consider the group think that creates long term elation; like adorers of dictators; or a long term rally on the market or the long term chasing of a stock that everybody wants. The .com bubble was such. This rally, we have been on a ride with may very well be another.
While we trade, we're not in a big crowd directly, but we are in one indirectly, and by watching the charts and indicators, we can see the pulse increase and decrease and the buyers / sellers piling in/scrambling out. As you watch to tick and candlesticks rise/fall along with your position, you are watching a large group agreeing with your trade. Your emotions have already kicked in and the anticipation is already there, and you are in "group think" watching how others react.. are they buying/selling? Give me more!!
When all is settled in the evening we start thinking.. how long can this go on? We know it is overblown, overbought and overestimated, and we don't have a penny to save it, but it goes on because there are plenty of buyers and sellers wanting "in" on the deal. Perpetuating the "group think". Until.. .. .. the group goes home, and you wonder: "What was I thinking?"
In trading it's important to know what you're thinking while the trade is happening and not get caught up so much that you lose yourself and your purpose. The elation is the same, but control is on and you leave unscathed. Life is really the same way, know who you are and what's your purpose, enjoy and be in control and you'll keep your individuality; (an occasional wild night forgiven).
Happy Trading, Living and Dancing
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