Funds tend to go where there are more people, while rationality stays where there are fewer.
$PNUT $neiro trapped a lot of 'retail investors.'
People are advised to 'stay away from crowded places'; going there will lead to being trapped.
But if I remember correctly, everyone's previous view was that going to 'crowded places' had heat; why has it changed after a drop?
Funds tend to go where there are more people.
1. Market Sentiment: When a particular token or sector attracts a large number of investors' attention, the dissemination of information accelerates. This concentrated attention often creates a 'herding effect,' where investors tend to follow the crowd's investment direction in hopes of profiting. This phenomenon is particularly evident in electronic trading financial markets.
2. Liquidity: Markets with more participants usually mean higher liquidity. High liquidity allows investors to buy or sell assets more easily, reducing transaction costs and risks. Therefore, a large amount of funds will naturally be attracted to these more liquid market areas.
3. Behavior of KOLs: Many KOLs cater to market sentiment, and when a hot topic arises, even if they are not involved, they still join in on the promotions, at least to ensure their 'butt is on the train.' They believe that participating in hot markets can not only lead to higher returns but also attract retail investors' attention through mass promotions and FOMO, building their personal brand.
Why do tokens with more 'retail investors' keep declining?
1. Over-speculation and Bubbles: When a token attracts people to buy due to emotional highs, these tokens are usually prone to excessive speculation, leading to an overbought situation. Once market sentiment reverses, tokens lacking follow-up buying power will be the first to suffer from selling pressure from those who bought in at lower costs.
2. Lack of Rational Decision-Making: Retail investors often lack a deep understanding of the market fundamentals, which may lead them to buy at highs and sell at lows, pushing the price up during rises and causing further declines due to panic selling during downturns.
3. Wanting to make quick money but unable to bear losses: Areas with many retail investors often indicate a higher risk tolerance, as they usually want to make quick profits. Once they start to see a drawdown, they begin to cut losses, leading to a price drop that quickens with each cut, similar to the example of perpetual failure in day trading.
4. Leverage and Liquidation: Many retail investors use leverage trading to amplify profits, but this also magnifies risks. When the market experiences adverse movements leading to leveraged positions being liquidated, the market price will further decline, as liquidations trigger more sell orders, especially when the margin is insufficient, causing further price drops.
5. No Rationality: Chasing highs and cutting losses, believing whatever the influencers say without considering whether they are using demo accounts, and setting overly ambitious goals without stop-loss or take-profit orders, only to cut losses when they can no longer bear the losses.
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