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Minyan Mailbag: Human Emotion Versus the Trade


...a gut feel is emotion and usually wrong.


Prof. Succo-

I greatly appreciate your detailed response to my question. I have read most of what you have written on MV and obviously the trading you do is very mathematical, involves lots of formulas and is very emotionless. Do you ever let human emotion get in the way of a trade or ever pay heed to a gut feel or instinct that is not quantifiable?

I hope you are having a great day.

Minyan Dennis


I get upset just like the next person; I don't like to lose money as I am conservative by nature. But over the years I have learned some important lessons, mostly the hard way.

First, you have to be willing to lose money to make money. This is mostly true for trading, although it can be applied to just about anything (two steps forward, one step back). The key is to manage losses and the only way to do that is to manage the risk first.

Second, we all make mistakes and no one is prescient. Those who predict likely have an agenda. I have tried to take most of all of the prediction out of things, preferring to trade "relative value" instead of direction. This necessitates leverage and an intense understanding of what that does.

Third, markets are not rational most of the time. Markets are the amalgamation of millions of individuals making decisions. There are insiders that are making decisions with knowledge and others making them with speculative insight at best. The "speculators" outnumber the insiders millions to one, so markets can do anything. I used to get frustrated at this (and to be honest sometimes I still do), but have learned to use this in understanding that "timing" is virtually impossible. The timing factor is taken out by diversifying a portfolio.

If I do anything about a "gut" feel, I almost always fade it: a gut feel is emotion and usually wrong. Fear is the mind-killer.

I do take out emotions from my trading. I just kick the dog instead.


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