Key Points
While everybody is looking at the same stock prices, same charts and has access to the same balance sheets and management commentary, not everybody has the same outcome in their trading and investing journey..
Investors may use the VIX to gauge market sentiment, specifically how fearful market participants feel.. Put-call Ratio: This ratio analyses the volume/oi of puts, or rights to sell an asset, and calls, the rights to buy an asset, over a period..
Markets may be a voting machine in the short run but they do provide a prism to make us believe what the group thinks and this can lead to a variety of biases like an illusion of being indestructible, collective rationalisation or simply being blinded to pitfalls...
When you overestimate how much you know about the market or a specific stock, youll be tempted to make risky decisions like trying to time the market, which is trying to predict the best time to buy or sell stocks, or overinvesting in high-risk stocks, which are more likely to lose money...
In financial markets, however, herd mentality can lead to asset bubbles, which is when the price of an asset like a stock rises rapidly but will eventually fall, and market crashes, which occur when a lot of investors sell off their stock...
