Gut-Feel And Intuition
Is there room for Gut-feel and intuition in trading? My answer might upset a lot of people and I wouldn’t blame them because trading is very multi-faceted that way. Many traders have plenty more experience than you or I, some will agree and others disagree with you are about to read.
Before I answer the question I want to pose a few analogies that can help frame the answer better for all of you. I’ve found that car/driving analogies paint a clear picture of what learning something consistently can do for you…
When you first learn to drive a car, there is a handbook on the signs of the road and different scenarios where certain rules of the road apply and why it is important to follow them. This is the theory.
You learn all the theory necessary to SAFELY operate a vehicle but at that stage, most of you, have not operated a vehicle yet. You are yet to practice applying the rules.
Now, when you first enter the car you check that every part of the car is working yada yada yada and now it’s time for action, time to drive. If you are not named Lewis Hamilton then you probably had the same experience and had a little trouble controlling the car, being aware of your surroundings, remembering the rules of the road that you studied so thoroughly all at the same time! A manual/ stick car is a whole different topic.
But after some practice, it all became easier. You got better at it. It now takes less focus to do the same thing that once had you crunched up against the steering wheel and breaking out in a sweat.
Now you’ve been driving for quite some time, you’re able to drive and have conversations with the passenger, drive and eat, drive and do your make-up (although that is not advised). You’ve evolved in your driving and you’re at the point where you can anticipate what OTHER cars around you may or may not do.
At first, you were worried about yourself and not crashing into others and now you’ve got the mechanics of the car down pact and now can avoid people crashing into you. But How? How is it possible that you can anticipate what other drivers might do? Simply…EXPERIENCE.
You don’t notice it but all the time your brain is picking up information as you learn anything. Anytime you had a near miss your brain registered how that car was moving and the next time someone swerves even a little towards your lane without indicating, you’ll find that your foot is already off the accelerator/ throttle before you even realize it.
That is what doing something over and over and over again does for you. That skill evolves into Muscle memory, your subconscious registers information until it becomes gut feel.
How does this apply to trading?
A lot of CHART-TIME can do the same thing that a lot of “road-time” can do for you. Pattern recognition over and over again can give you a 6th sense for the movement of price. However, a 6th sense is NOT a trading strategy. Just a gut feeling that something is likely to happen a certain way because in the past you’ve seen it happen this way so many times that it is highly probable that price will move in the same way.
CHART-TIME can include back-testing but I think it is actually trading a system or strategy in real markets, always risk very small amounts as you’re starting out because emotions are easy to control when the money is fake.
Too often there are people who have success in demo trading and crash in live trading and that’s because driving in a simulator is not like driving a real car. Any racecar driver will tell you there are bumps in the road that give feedback, g-force, and other important factors that a simulator can’t give you.
So to close Yes, I think there is room for gut-feel in trading but that comes later once you’ve become consistently profitable for an extended period, you’ll eventually learn to throttle your risk and be even more profitable. It will take time, and like anything, if anyone could do it then everyone would. Don’t be too eager to try out your 12-month old intuition because there is no substitute for skin in the game. So get in the game.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.
Trading Intuition FAQ
Trading intuition is something earned after years of experience trading a particular market. So beginners should avoid any intuition based trading at all costs.
Yes, Seasoned traders have seen patterns play out in the market a thousand different ways and may spot when the probabilities are stacked in their favor.