Tuesday, September 20, 2016

Understanding Gut Feel and Trading Success

A great recent research article documents the role of "gut feel" in short-term trading.  Traders who are more self-aware with respect to their bodies tend to outperform those who lack such awareness.  Interestingly, if you read the report carefully, you'll see that a second variable predicted trading success independently of body self-awareness:  heart rate variability.  We've encountered heart rate variability before in explorations of biofeedback as a means to developing calm focus and increasing access to intuition.  The recent study hints at the possibility that these two factors indeed work in tandem:  the ability to sustain a calm, focused state during turbulent markets provides access to our gut feel, which in turn helps us sustain sensitivity to market patterns that emerge in real time.

If this is the case, then access to our intuitive capabilities indeed can be trained and cultivated.  This may not help trading that relies upon explicit reasoning and analysis, but would be very useful for active daytraders and those looking to use short-term market patterns to achieve superior entry and exit execution of longer-term trades.  It was interesting to see in the study that medical students in the sample scored lower in their body self-awareness than the successful traders.  Medicine requires careful analysis and synthesis of information to arrive at diagnoses and potential treatment options.  It is less purely intuitive than scalping short-term patterns in stock index futures.

The key takeaway is that different strengths predict success in different fields, and different strengths predict success in different forms of trading.  Much of trading success comes from aligning your strengths with your approach to markets.  It may well be that the greatest success comes from the ongoing strengthening of our strengths, training ourselves to become better in utilizing our signature modes of processing information.

Further Reading:  Improving Your Trading Toolkit