Herd Mentality
Risk ManagementFollowing a crowd into or out of a trade instead of an independent assessment, leaving the position with no defined exit rule.
Herd mentality, also called herding, is the tendency to follow what a crowd is doing rather than an independent assessment — copying a widely shared trade idea, chasing a move because social feeds are full of it, or exiting simply because others are exiting. It is not irrational in every case: crowds sometimes carry real information, and momentum is a genuine market phenomenon. The problem is that a position entered only because others hold it has no defined invalidation point, so the trader has no rule for when to leave. Herding also concentrates positioning, which is one reason crowded trades can unwind sharply when sentiment turns. Independent entry criteria and a documented reason for every position are the usual counterweight.