BartroMetrics Views: The Decision-Making Process

Some e-mails I have received about the recent blogs would suggest I am not explaining myself clearly.  So, let me state it in a one-line comment: I believe that the best decisions are the ones that combine head and heart i.e. reason and intuition (and intuition signals its intent through our feelings).

Hence I totally disagree comments such as these (from a S$3000.00 course): “Know always that a Successful Trader is a Rational Trader. One who controls emotions to the point of being void of feelings”.

The statement flies in the face of the most recent discoveries in Neurology. The fact is in environments of uncertainty such as trading, what we need is a dialogue between our emotions and rational analysis. Andrew Lo (Heretics of Finance) conducted an experiment with 10 FX traders. He found that the traders made the worst decisions when their emotions were either silent or overwhelming.

This means of course that when trading we need to think about thinking.  By being aware of the kind of decision we are making we can learn from our mistakes and make better decisions next time.  If we shut off our emotions totally we are forgoing an important source of information.

(For an introduction to Andrew Lo go to: http://www.mtaeducationalfoundation.org/documents/A.Lo_-S_C_article.pdf )

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