This class of participants helped increase the volumes traded in these markets substantially and led to depth which makes the market rational in normal times. Normally there is always some one willing to take a position opposite you so you normally would not run in to a wall where there is nobody to sell to or buy from. That made the markets rational to some extent.
This scheme of out-thinking others can lead to mass movements in one direction depending on the current mood of the participants. Hopes in times of boom, fear in times of bust. And this could of course happen across different time frames - long/medium/short term. So large trends may develop in the markets that lead to sharper reversals when sanity returns. It is a moot point whether to call such times rational or irrational, it becomes a philosophical issue and we need not bother with that aspect here. What we do need to know is that in these times a 'so called rational' response of taking contrary position to the underlying trend, can lead to grief as the markets may remain in that trend longer than you would remain solvent.
Also fundamentalist (more about them in some chapter) try to equate rationality with valuation models, which also depend on prediction of future income/cash flows/profits etc. which it self is not accurately predictable. So rationality or irrationality is a term that is defined by one's way of looking at the market.
What we do know is it is wrong to take a contrary position when the trend is nascent - follow the crowds - must be the motto. At the fag end of a trend - taking contrary position may be more than justified. The problem remains of course of deciding when the trend is nascent or exhausted. Like most things in life, these things look simple on paper, or on this screen, practice is vastly different.