The Herding Effect (Herd Mentality) refers to the psychological phenomenon where investors abandon their own independent judgment and blindly follow the crowd or market trends to buy or sell.

How it works:

• Bull Market FOMO: Seeing everyone else making money triggers Fear of Missing Out, leading people to rush in and buy at peak, dangerous valuations.
• Bear Market Panic: At the slightest sign of trouble, people panic-sell regardless of asset fundamentals, causing cascading price crashes.

Following the herd inevitably leads to "buying euphoria at the top and selling panic at the bottom." Retail investors usually join when the herd is largest, ending up as the exit liquidity for smart money.

Be fearful when others are greedy, and greedy when others are fearful.