Let's look at one interesting concept that affects every trade we make - the information cascade. 🎢
Do you know what we're talking about? This is when traders make decisions by looking not at their charts and analysis, but at the actions of other market participants. 🕵️♂️ Yes, yes, it doesn’t sound so right, but this is the reality of financial markets, especially in conditions of uncertainty.
Here's how it works:
1️⃣ Start stream:
In the beginning, it all starts with purchases from informed traders and insiders. 📊 They act based on their own analysis and information. These purchases may be random and unrelated to each other.
2️⃣ Imitation:
Next, uninformed traders enter the picture. 🤔 They begin to imitate the actions of others, thinking that they have more accurate information. 🧠 Even if these actions contradict their own analysis!
3️⃣ Domino effect:
When enough traders start to "follow the leaders", a domino effect occurs. 🌪️ More and more market participants are making similar decisions, which leads to an intensification of the trend. And yes, this trend may be far from the fundamental value of the asset.
📢 “Herdness expresses the property of mass investment processes, when everyone focuses on each other and simultaneously buys and sells the same assets.”
— George Soros 🧠
My observation is this: watch your metrics, do your analysis, and don’t get caught up in the information cascade. 📉 In trading, what matters is not what everyone else does, but what you personally understand! 🤘
