Emotional Neutrality


DEFINITION 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.

  1. Kiasu

    A Chinese adjective used to describe a person's fear of losing ...
  2. Icarus Factor

  3. Irrational Exuberance

    Unsustainable investor enthusiasm that drives asset prices up ...
  4. Mechanical Investing

    Buying and selling stocks according to a screen based on predetermined ...
  5. Nervous Nellie

    An investor who isn't comfortable with investing and the risks ...
  6. Panic Selling

  1. How can I tell if I'm an emotional investor?

    Successful investors possess the important trait of emotional stability, which means that they base their investment decisions ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Logic: The Antidote To Emotional Investing

  2. Investing Basics

    Removing The Barriers To Successful Investing

  3. Active Trading Fundamentals

    How The Power Of The Masses Drives The Market

  4. Trading Strategies

    How To Avoid Emotional Investing

  5. Trading Systems & Software

    Basics Of Trading Systems

  6. Economics

    Understanding Perpetuity

  7. Fundamental Analysis

    What is a Null Hypothesis?

  8. Chart Advisor

    Why Now is the Time for Food and Beverage Stocks

    As volatility rears its ugly head, it's natural to investigate stable sectors such as food and beverages. Here's an appropriately-named ETF to consider.
  9. Chart Advisor

    4 Big Stock Gainers: Hold or Sell?

    These four stocks saw big moves higher on March 17. Is it time to take profits or hold out for more. Here's what the charts say.
  10. Charts & Patterns

    Why These Could Be 2015's 10-Best Pharma Stocks


You May Also Like

Hot Definitions
  1. DuPont Analysis

  2. Asset Class

  3. Fiat Money

  4. Interest Rate Risk

  5. Income Effect

  6. Price-To-Sales Ratio - PSR

Trading Center