Healthy intuition gives the average for free, for calculating the amount we must work hard

A logical pattern based on the use of quantitative tools such as the laws of statistics and probability is of crucial importance in the world of financial asset trading. If so, the question arises as to whether intuition is a legitimate behavioral tool in making investment decisions? Is it right to act based on intuitive thinking even when there is no logical or rational reason to do so? Are entering a trade without a clear method, leaving a trade prematurely or refraining from entering a perfect trade that meets all the rules based on a personal “gut feeling” sensible decisions, or should they be seen as irresponsible, underlying, or valid emotional impulsivity?

What is intuition

Intuition is a human trait that comes from the subconscious, which allows us to seemingly know about the reality, without the use of conscious thinking and without the ability to explain exactly why we took a specific position. Intuition is subconsciously shaped from a vast pool of ideas, insights and associations that stem from previous experiences that are linked to each other in different and varied ways. The intuitive trading capability is based, among other things, on the trading experience gained over the years – trades we performed, graphs we examined, information we analyzed and more. Experience is etched in our minds, for the most part in our subconscious and provides reference points that are reflected in the decision-making process in trading. In contrast to conscious thinking based on performing calculations and logical analysis of information, which is slow and limited and requires control effort, intuitive knowledge is created quickly and sends in a split second a decisive conclusion to action. However, the intuitive solution is not always found immediately and sometimes it comes after “sleeping on it”.

How much should we rely on intuition in trading

The habit of relying on intuition characterizes successful people in all areas where decision-making is necessary and does not contradict or replace the use of intelligence, the use of quantitative and qualitative data or the use of rational analysis but adds another aspect to them that improves overall decision-making efficiency. There is no precise intuition, intuitive ability differs from person to person and its results are not guaranteed in advance. But there is no question about the power of healthy intuitive feelings and their high potential to turn out to be successful. The problem with intuition is that it sometimes rewrites history. Every person’s intuition is built according to his experiences in life and its purpose is first and foremost to protect him, for this reason it does not always serve us as traders. A trader who has been financially hurt several times in trading may develop intuition combined with suspicion, he may be reluctant to enter the trade because of the possibility of suffering a blow even if in the field everything shows that this is an amazing deal. Such a trader may, and not always rightly, get used to not trusting his feelings. Unlike instinct which is an innate tendency to perform an automatic action in response to a specific stimulus, in any intuitive action the last word is always of conscious thinking, so we as traders must avoid our nature to act instinctively and instead adopt the habit of “believing” our intuition even when it goes against cold logic.

How can intuition be developed

There is no doubt that we all have an element of fast automatic and powerful “technology”. Can we “program“ it? Do we have the potential to develop and refine our intuitive ability in trading? The basic answer is yes! At the same time, intuition, powerful as it may be, is always limited to the laws of reality. It is very important not to confuse true intuition with imaginary intuition. The capital markets are characterized as a random system. It is relatively difficult to build intuitive expertise in an environment where it is difficult to find a pattern of regularity, but it is certainly possible. The miraculous talent of intuition is to provide an effective solution in a reality that is chaotic, or when the ”problem is too big” and there is no logical solution to the situation. There is a big difference between good memory and excellent trading ability. There is a mechanism in the minds of “super traders” that handles the complex process required to retrieve and extract the database stored in memory into one accurate and unambiguous trade, this is what strong intuition does. If such traders are asked to explain what they are doing, they will not always know how because it happens unconsciously, the answer is likely to be – “I just see it”. When at its best, intuition acts like magic, we can take a quick look at the screen and see the next trade, it just pops up.
The way to “program” intuition is regularity, practice, and immediate and continuous feedback from the best expert you can find. Every trader must act deliberately and systematically to expand and deepen the basis of experience available to him, the secret is to learn from mistakes, analyze the gap between our intuitive decisions and reality and “adjust” accordingly, we must trust to learn our intuition. The most important factor is the level of the expert who corrects and makes our intuitive system “more accurate”, the coach’s expertise limit will in most cases be our glass ceiling.

Writer: Edo Harari, Chairman of Circle A Capital.