Humans are hard-wired to herd. But successful financial speculation requires you to override this impulse.
As Robert Prechter explains in The Socionomic Theory of Finance:
When defaulting to the mechanics paradigm, people unconsciously perceive the market as a physical system. Under that illusion, buying during rallies is as natural as plucking fruit off a tree, and selling during declines is as natural as ducking when a rock is flying toward your face. The immense difficulty in overriding this default explains why successful speculators are so rare and why they are so immensely rewarded for their skills. To be a successful speculator, you must learn to do something that almost no one else can do. You must sell near the emotional extremes of rallies and buy near the emotional extremes of declines. The mental discipline required to initiate a position by buying near a low or selling short near a high is akin to that required to walk away from a tree full of delicious fruit when you are hungry or to stand still when you see a rock hurtling toward your head.
We don’t rely on the herd to tell us what to do. Our basis for analysis and forecasting is fundamentally different from everyone else’s.
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