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Why investors tend to copy each other, and why it's so easy to ignore information that contradicts a decision already made — two separate phenomena that feed each other.
Herding is the tendency of investors to copy the decisions of a larger group, even without independent information supporting it — on the (not always correct) assumption that 'if everyone's buying, they probably know something.' This can create price moves that are temporarily disconnected from real fundamental value, in either direction.
Confirmation bias is the psychological tendency to seek out, remember, and give weight to information that supports what we already believe, while ignoring or downplaying contradicting information. An investor who already bought a stock tends to notice positive news about it more, and warnings less — not out of malice, but a natural human thinking pattern.
Herding creates social consensus around a particular stock; confirmation bias makes each participant believe they reached that conclusion independently and rationally, and so they ignore signs that the consensus itself might be wrong. Together, they can extend a price move far beyond what the underlying fundamentals actually support.
StockIQ's psychology engine identifies herding patterns (for example, similar movement across highly correlated stocks) from real price and volume data — as a completely separate observational feature from the weighted score, not part of it.
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The information in this guide is intended for general educational purposes only and does not constitute investment advice. Full details on the disclaimer page.