Trading and Emotions
[Commentary]
From InvestopediaDefinition of 'Emotional Neutrality'
The concept of removing greed, fear and other human emotions from financial or investment decisions. The goal of emotional neutrality is to remove any weight that emotions may play in the process of making objective financial decisions, so that the best possible decision can be made, in spite of whatever emotions those decisions may trigger.
Investopedia explains 'Emotional Neutrality'
The concept of emotional neutrality arises out of the typical human reaction to profits and losses -- investors are typically pleased when their trades produce profits and unhappy when their trades produce losses. However, if investors are able to remove the impact that their emotions have on their trading decisions, proponents of emotional neutrality contend that doing so will result in improved trading performance.
Taking things one step further, some investors adopt what is called a contrarian strategy, in which they attempt to buy securities when everyone else is selling them, and sell securities when everyone else is buying them. The rationale behind this strategy is that if investors are not emotionally neutral, their emotions will impact their trading decisions and thus under- or over-value securities, creating an opportunity for profit for contrarian traders.
Taking things one step further, some investors adopt what is called a contrarian strategy, in which they attempt to buy securities when everyone else is selling them, and sell securities when everyone else is buying them. The rationale behind this strategy is that if investors are not emotionally neutral, their emotions will impact their trading decisions and thus under- or over-value securities, creating an opportunity for profit for contrarian traders.
[Relevant Free Videos]
"Make sure your bet size matches your emotions"
Full Interview with Mark Douglas above:
https://www.youtube.com/watch?v=GhKJ9P3agRc
[Relevant Books]
[Relevant Blog Posts]
3 Ways For Traders To Manage Unruly Emotionshttp://www.investopedia.com/partner/dailyfx/forex/news/3-ways-traders-manage-unruly-emotions.aspx
Master Your Trading Mindtraps
http://www.investopedia.com/articles/trading/07/trading_mindtraps.asp
[Additional Commentary]
You can not spend enough time reviewing, studying, and thinking about emotions while trading. It is the single most important thing with trading and absolutely imperative to get under control to be a successful trader. The majority of my losses can be attributed to emotions and not "being wrong" about the trade.Related Categories:
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