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The Collective Wisdom

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The Collective Wisdom

It was posed to Sawicki: Which conditions make the crowd smarter? His response was:A smart crowd possesses four essential characteristics’ must be diverse so that individuals can contribute a variety of perspectives.It must be decentralized so that no one at the top can dictate the response from the crowdie needs a method for combining everyone’s opinions into a single verdict.In addition, the crowd members must be independent so that they concentrate solely on their own information and do not worry about what others think.

Let’s focus on these four points and put them to use in relation to the stock market.

1.Diverse.People bring a variety of information to the U.S. stock market, and the prices at which they buy and sell reflect not only their opinions but also their levels of knowledge and expertise.As a result, we are aware that our market is diverse, and Surowiecki claims that this quality contributes to a crowd’s intelligence.

2.Decentralized.The majority of stock markets are decentralized, so prices are set independently. 3.Concluded by the group.When compared to an individual’s decision, the collective verdict of the crowd frequently yields a more intelligent outcome.The market’s collective verdict can be seen in two ways: first, in the direction of the trend, and second, in the closing price of individual stocks.

4.Independence.The individual’s independent thoughts and actions are the final quality in any crowd that can help distinguish a smart crowd from a dumb one.It is directly related to Diversity’s first quality.At the point when you get everybody acting freely, you get variety and when, through this variety, you get a typical subject growing, for example, a bullish pattern, then, at that point, you realize that there should be something to it, seeing such countless individuals autonomously concocted a similar response.This is what I’d call the behavior of our market.

After qualifying and expanding on Surowiecki’s four characteristics, I believe we can confidently assert that the crowd in our stock market is a smart crowd rather than a naive one. I bring this up intentionally because so many commentators advise us that going against the crowd is the way to succeed as investors.They frequently recommend that we go it alone and be self-sufficient.Being independent in and of itself is not a bad thing, but if our independent decision-making leads you in a completely different direction than the rest of the market, it doesn’t seem like a good move.

The material in the author’s book Trading Psychology serves as the basis for this article:Available on Amazon is Winning the Mental Tug of War on Stock Markets.