Friday, October 24, 2014

Trust Your Intuition

The comfort zone is the great enemy to creativity; moving beyond it necessitates intuition, which in turn configures new perspectives and conquers fears. 
Dan Stevens

Many people who begin trading think of the markets in purely mathematical terms: If the ultimate multiple regression equation could be devised, one could simply put in the inputs and get the outputs from your computer. The working assumption seems to be that the markets can be predicted in much the same way that engineers can use equations to construct a bridge or a tall building. The markets however, are not consistent, and in some ways, they are far more complex. Many seasoned traders tend to rely on abstract feelings as much as cold hard facts. They trade intuitively. 

How do you observe the world and gather information? Do you just want the facts and the specific details? Or are you more intuitive? You don't believe in "facts." You think reality is subjective and prefer to think in theoretical and abstract terms. You should identify whether you are intuitive or data oriented. If you are data oriented, you should learn to trust your intuition. Many times I look at setups which years ago I would have considered perfect, yet now my intuition tells me something is wrong with this setup, I couldn't tell you what is wrong, just that something is wrong, and I move on. 

There are those who prefer cold, hard facts and see the world as rational, predictable, and orderly. Intuitive types however, see the world as random, theoretical, and conceptual. The hard facts type of trader may want to know the specific price level where resistance begins.
He or she would prefer to follow a specific set of rules and may want to pin down exactly where an abstract value, such as resistance, begins and ends. An intuitive trader, however, views the "rules" to identify resistance as merely guidelines. For example, perhaps resistance is perceived to be a round number or a previous peak or trough. No one knows for sure; such guidelines are just possibilities, not hard and fast rules. Some look at market concepts literally, believing they are true-life entities, rather than just abstract concepts. An intuitive trader looks at the markets in a figurative sense. All signals and indicators are subjective in the end, may be a little inaccurate, and are a mere approximation of reality. There's a good chance they will be wrong and that's all right. 

When it comes to the markets, it's generally advantageous to be an intuitive trader. Reading charts and getting a feel for the markets is subjective in the end. Trading decisions are merely based on educated guesses, attempting to put the odds so-to-speak in our favor. It isn't exact, but random, unpredictable, and conceptual. It's not linear, matter of fact, and predictable. Because the markets are so complex and chaotic, it takes intuition, hunches, and a kind of creative and artful mastery to win consistently. The logical analysis of facts and figures can only go so far when you are trying to trade the markets, which have inaccurate figures and are largely inexact. So if you are a "natural" intuitive type, you've got a head start. And if you are a data-oriented, sensor, try to nurture your more intuitive side. Experience in and of itself will often help develop the intuitive, present in all of us, even if you are the cold, hard facts type of person. Become an intuitive trader, and you'll see your profits grow.

Reprint from the Prudent Trader archives

No comments: