Trading from Your Gut

Left-Brain and Right-Brain Investing

Understanding the differences between the two hemispheres of the human brain is the first step toward using the whole brain to make investment decisions. The left hemisphere is the rational, analytical side that respects rules and recognizes limits. The right hemisphere is more inductive, better at identifying patterns and imagining possibilities.

Two distinct categories of securities traders represent the type of thinking that happens in each hemisphere of the brain. “Discretionary traders” tend toward right-brain thinking. They follow no specific formula for buying or selling because they regard investing as an art. “System traders” treat investing like a science, basing their decisions to buy or sell on preset rules. Both tactics have drawbacks. Acting on investment ideas without analyzing them is reckless. Trading exclusively “from the gut,” or on instinct alone, also can produce lackluster returns. Many traders pay more attention to facts than their feelings; however, they could achieve better returns by putting more trust in right-brain thinking and by using intuition to generate more ideas for left-brain evaluation. This ...