Trader Intuition: How to Know When You’ve Got it and When to Trust it
As traders, we look at the world differently than most people. We’ve trained our brains to think in terms of risk, and we assess new opportunities from many different angles (at least I do).
When I first started out as a trader I read and listened to a lot of interviews of top traders. I got to meet and learn from a variety of successful traders in the Chicago area and they all told me the same thing.
“You and only you are responsible for your trades.”
Over and over again I would hear them talk about how trading is a direct reflection on yourself. The style you choose and the way you trade must fit with who you are.
What is Trader Intuition?
Another theme that was talked about is how they developed a feel for the markets, their intuition as it’s called. Great traders have the ability to sense the rhythm and pace, and can pick up on the nuances of the market.
The traders I know down in the pits at the CBOT use this “feel” everyday to make trading decisions. So how then, do we develop this intuition ourselves and know when to trust it?
The answer lies in differentiating our intuition from our emotions. New traders execute trades based on how they feel or what they want to happen at the time of the trade, they don’t have a calculated edge, they’re just shooting from the hip.
Experienced traders execute trades based on calculated risks and a predetermined edge. For those of us who consider ourselves experienced, we’ve learned to let go of the emotional attachment to a trade or idea. This opens up the door for objective observation.
Think of Yourself as an Observer
When you place a trade based on an emotional response you will most often lose. In the long run it’s certain to lead to ruin. Instead of approaching the markets with the attitude of “myself versus the market,” I prefer to take a more passive approach as observer; only jumping in when I can identify a clear edge.
The most objective role we can pay is the role of the observer. Over time, I found that I’m just as calm and level headed while in a trade as I am on the sidelines, this is a big step in the path to progressing as a trader.
The funny thing is, the more systematic you become in your trading, the easier it is to identify subtle changes in the market. These subtleties are often hard to pin point exactly, that’s your intuition talking.
When to Disregard Your Intuition
Realize that the tendencies and biases you bring to trading will 99 times out of 100 be wrong. Your initial feelings and instincts are simply human in nature, thus new traders act just as others do. Make a note of these initial feelings and learn to set them aside, do not act on them.
It took me a good year or two to fully grasp my trading emotions. One thing that resonated with me early on was a short audio series by Peter Reznicek. I find that listening to podcasts like these while taking walks is a great way to absorb the information at a deeper level.
After a few years of studying the markets, focusing in on one method and a few select markets I began to develop a “feel” for the markets I was trading. This is the intuition you want to listen to.
Here you can read more about my story and why I think all new traders should begin with swing trading along with why I migrated to day trading.
Understanding Your State of Mind
There are things we pickup on in the markets without us even consciously realize it. When I feel good, I trade well. When I’m in a “groove” or “rhythm” I come into each day looking at the markets in an objective manor, I can clearly assess the risks, and determine where the best opportunities lie.
It’s only when you can accept the risks and trade without fear that you will be in a state of mind to become completely “in tune” with the markets.
How to Get into a Trading Groove
Mark Douglas (and more commonly great athletes) call this feeling being “In the Zone.”
Being in the zone doesn’t necessarily mean that you are currently in a position. You could be sitting on the sidelines waiting for a setup when you notice something different about the markets, a small change. Maybe you can’t pin point it exactly, it’s usually a combination of factors you pick up on subconsciously. This is the time when I trust my intuition.
I know what it’s like to think the market should do one thing and have it do another. Things don’t always make sense. The more you observe your thoughts and reactions the better prepared you will be to react on the right side of the market.
Notebooks, Journals, and Post It’s, Oh My!
I’m a big fan of post it notes. I keep them all over my desk. I record little things that I want to revisit later. Key levels, bigger picture items, a stock that caught my attention that I’d like to look at later in the week. These act as great reminders.
The notebooks are great too. When I created my trading journal I leave plenty of room for notes. I am constantly reviewing my old notebooks and observations.
You’ll know when you’re in the zone, that groove, that rhythm, listen to your intuition when you’re in this state of mind. Just make sure not to get too cocky and think you’re invincible. It’s when we fall back on our emotions that the rug gets pulled out from under us.
The Bottom Line
It’s only when we are in a rhythm that we should be listening to our intuition. When you have developed a rhythm and are in a clear state of mind and thinking objectively our intuition can be of great value.
Well, racing has begun which means my time I have to devote to the blog decreases. Once I finish trading for the day it’s usually right to the bike for a 2-4 hr training ride.
I do my best to put out a weekly blog post and newsletter, in addition to recording new videos and webinars and market analysis for the members area, but just a heads up that there will be a few weeks here and there that I’m unable to publish a post.
Have a great week everyone!