2. Identify the Herd Instinct
• A gap always exist between perception and reality
• Buy and selling happens not on the present state of
fundamentals, but on the expectations.
• Not only the market participants offer their bias, but their
bias may also influence the markets.
3. Theory of Reflexivity: Belief do is
alter facts
• Market prices never offer the rational view of the future
events. But rather a biased one.
• Search for an unexpected development
• Try to determine what the market total sum of these
investors thought at any given point of time.
• Flawed perceptions cause markets to feed on themselves
4. Process of reflexivity
• Unrecognized trend (Track)
• Beginning of the self-reinforcing process.(Buy)
• An increasing conviction(hold)
• A divergence between reality and perception(Sell)
• The climax ( test- Shorts)
• Start of mirror image self-reinforcing sequence in the
opposite direction ( Massive shorting)
5. • Trend continued, the significance of speculative
transaction grew.
• Bias affect not only the market price but also the so called
fundamentals.
