FROM Brett Steenbarger, in The Psychology of Trading: The idea that emotions are the root of trading problems — and that successful traders eliminate their emotions — is one of the great myths in the field. Indeed, research in cognitive neuroscience, particularly the work pioneered by Antonio Damasio, suggests that emotion is absolutely crucial in decision-making.

The gist of Damasio’s somatic marker hypothesis is that a section of the brain’s frontal cortex is responsible for storing and processing associations between situations and the emotions that had been activated by those situations. When we store these associations, we are not storing conscious memories, but creating links between situations and how those situations make us feel. Those links are "dispositional", which means they lead us to act in one way or another.

In all decisions, Damasio argues, feelings — from explicit emotions to felt body states — are joined with perceptions to guide our behaviour.

Risk-takers display emotional signals prior to making their choices, but tend to override those signals with their explicit thought processes.

The idea that successful traders overcome or eliminate their emotions is completely off-base. Rather, it is the overriding of emotional signals and signals from felt bodily experience that facilitates poor decision-making. This overriding can occur because of anxiety, greed, or myriad cognitive rationalisations. The implication, however, is that, at some level, experienced traders receive valuable physical and emotional signals to guide their decision-making.

Choice lies at the heart of trading, and if Damasio is correct, our felt experience is a necessary substrate of choice.