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.
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.