History clearly indicates that the masses have never been on the right side of the markets going back all the way to the Tulip Mania. 

Market frenzy and eventual implosion is a reminder that following the crowd can lead to devastating losses, while a contrarian approach can lead to substantial rewards. 

Crowd psychology is observed when investors imitate other market participants instead of using their own judgement. Many times this logic is irrational with individuals thinking they have less information than the group of investors as a whole. 

Many people who know very little about investing rely on the crowd or media to provide them with information about investment opportunities. 

One of the first manias where investors piled in by the droves was the Tulip mania in 1634 in the Dutch Netherlands. Using contract margins , buying on credit and leveraging assets investors did whatever they could to get their hands on tulip bulbs. In 1637 the prices began to fall and the market quickly collapsed. 

WallStreetBets is an interesting community you can find on Reddit. Most posts will contain emojis and memes along with bits and pieces of information pertaining to a stock or crypto . It’s no secret that many in this community will openly admit that they know very little about what they are investing in and are simply following the crowd and throwing money at what is being discussed the most. 

The crypto craze of 2021 reached a frenzy with the majority of influencers calling for 100k bitcoin with the entire crypto market growing to just over 3 trillion dollars. Many were calling for a bitcoin “ super cycle “ while the Fear & Greed index spent much of the year in greed territory. 

It took a lot of discipline in 2021 and being able to think for one’s self in the later stages of the bull run to either take profits or stay on the side lines and not buy into influencer narratives. 

On the other side of the coin ( no pun intended ) it takes a tremendous amount of conviction and discipline to be investing in the crypto market at a time like this when there is fear in the market and influencers were calling for a 10k bitcoin. 

How you can avoid the crowd pyschology 

Do Your Own Research. Take time making decisions , question your assumptions and comprehend the effects of your decision. Stay focused on your long term goals as fear and greed will tempt you to join the masses. 

Follow successful investors. Successful investors market views are formed by experiencing market cycles over a long period of time. If they are successful it is because of the lessons that they have learned from their mistakes. 

Exercise Patience. Chasing a crypto pump is never a good idea. To be clear I am not referring to a trend but to a meteoric rise like that experienced with SQUID token. A cryptocurrency inspired by the Netflix series Squid Game became the most hyped digital token when it’s valuation shot up to $ 2,861 per coin before plummeting to a fraction of a cent when the creators cashed out draining the liquidity pool. 

Be keenly aware of market conditions. Is the market overbought or oversold ? The value of the Fear & Greed index tends to rise and fall with the broader market. So times of intense fear have often coincided with near-term market bottoms, while high levels of greed can be an indication the market is overheating and that it’s a good time to sell some crypto. 

Make a conscious effort to form your opinion. Forcing yourself to justify your decisions will bring a level of scrutiny that would hopefully avoid the crowd mentality. 

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.