Mauboussin is one of the most rigorous thinkers in investment research, bringing the findings of behavioral finance, cognitive psychology, and complexity theory to bear on how investment decisions are actually made versus how they should be made under rational conditions. His work consistently demonstrates that emotional interference in trading decisions is not an occasional problem for weak-minded traders. It is a structural feature of how human beings process information under uncertainty, and it affects everyone regardless of intelligence or experience.

The core finding that runs through this area of research is consistent: emotions are not separate from trading decisions. They are embedded in them. The feeling of confidence or fear that accompanies a position is not background noise. It actively shapes the decision to hold, exit, or add. Traders who believe they are making purely rational, data-driven decisions are typically unaware of how much emotional processing has shaped what they notice, what they remember, and what feels right. This is precisely why systematic rules-based trading provides an advantage. The rules were written when the emotional environment was neutral. They do not change based on how a current position feels.

For the related discussion of emotional intelligence as a prerequisite for trading success, see the emotional intelligence page. For more on how Ed Seykota’s Trading Tribe addressed these emotional obstacles directly, see his Trading Tribe book. For the complete framework of how systematic trend following removes emotional interference from trading decisions, see the TurtleTrader rules and the trend following overview.

Frequently Asked Questions

Who are Michael Mauboussin and Kristen Bartholdson?

Michael Mauboussin is a leading researcher and author in investment strategy and behavioral finance, known for applying cognitive psychology and complexity theory to investment decision-making. Kristen Bartholdson has collaborated with Mauboussin on research examining how psychological biases and emotional processes affect investor behavior and trading outcomes.

Why do emotions matter in trading if you have a systematic approach?

Because even with a systematic approach, the trader must follow the system. Emotions influence whether rules are followed or overridden during drawdowns, whether signals are taken after losing streaks, and whether winning positions are held long enough for the trend to develop fully. Understanding how emotions shape decision-making helps traders recognize and manage the moments when emotional pressure is most likely to cause them to deviate from their rules.

How does understanding emotions improve trading performance?

By making the emotional interference visible. Traders who are unaware that their decisions are being shaped by emotional processing cannot compensate for it. Those who understand the specific ways emotions distort judgment, through loss aversion, overconfidence, recency bias, and similar mechanisms, can build systems and habits that reduce the influence of those distortions on actual trading decisions.

Trend Following Systems
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