I got an email from a student this week asking about using intuition in trading. He gave an example where using intuition worked in his favor (by keeping him out of trade that signaled then lost), but then wondered if that is really a good idea.
One of the reasons I recommend SO much backtesting is because of the intrinsic learning that goes on while one is testing. (Stay with me here…it is relevant, I promise).
Intrinsic learning is the deeper level learning that happens without our even knowing it. Take any profession, any field, and the person who has been doing it longer will almost always outshine the person who just studied all of the latest and greatest information. That isn’t simply because of longevity in the field, it is because over the course of the masters’ time learning s/he has been subconsciously and unconsciously picking up tidbits, details, tiny little indicators and clues along the way that they couldn’t actually teach to someone even if they tried. The lessons are too deep and often there aren’t even words to describe what the expert knows… it is just that they know it.
This is the level of expertise where people begin to describe the expert as a sage, “He just intuits the [insert situation].” Is it true intuition as we often think of it? Maybe s/he’s really reaching into the ether and extrapolating answers. Maybe s/he’s just calling upon the deeper understanding that has developed over time. Maybe s/he’s doing a little of both.
That is wonderful theory, but it doesn’t really answer the question that was asked, “Should intuition be used in a trade or should rules be strictly adhered to?”
A beginner should always just follow the rules because you have to start somewhere. After a while it is inevitable that the experience that has been built will start to speak to you and it can be a difficult leap to go from the structural experience of the system to the life experience of actually trading.
Here’s what I recommend:
Keep a good record of those trades where you’ve knowingly incorporated your intuition. The trades you skipped and the trades that you took should all be recorded. At the end of a trading cycle (day/week/month – whatever a cycle is for your timeframe) review those trades and see if they’re working to enhance your system or destroy it. If they’re improving what you do, you can rest a little easier and trust your instincts a little more. If they’re depleting your account, go back to your structure for a bit and when (not if) you start to feel intuition come back into play start keeping track again.
The caveat to this is that a certain amount of intuition will come into your trading over time whether you’re conscious of it or not. However, if you are noticing something other than your rules sneak into your trading, don’t disregard it entirely. Entertain it, give it a chance, it could be introducing itself for a reason and might go a long way toward improving your trading as well as your belief system about your ability to trade well.
What do you think?
Part 2 – Judging Intuition's Roots
One of the reasons I recommend SO much backtesting is because of the intrinsic learning that goes on while one is testing. (Stay with me here…it is relevant, I promise).
Intrinsic learning is the deeper level learning that happens without our even knowing it. Take any profession, any field, and the person who has been doing it longer will almost always outshine the person who just studied all of the latest and greatest information. That isn’t simply because of longevity in the field, it is because over the course of the masters’ time learning s/he has been subconsciously and unconsciously picking up tidbits, details, tiny little indicators and clues along the way that they couldn’t actually teach to someone even if they tried. The lessons are too deep and often there aren’t even words to describe what the expert knows… it is just that they know it.
This is the level of expertise where people begin to describe the expert as a sage, “He just intuits the [insert situation].” Is it true intuition as we often think of it? Maybe s/he’s really reaching into the ether and extrapolating answers. Maybe s/he’s just calling upon the deeper understanding that has developed over time. Maybe s/he’s doing a little of both.
That is wonderful theory, but it doesn’t really answer the question that was asked, “Should intuition be used in a trade or should rules be strictly adhered to?”
A beginner should always just follow the rules because you have to start somewhere. After a while it is inevitable that the experience that has been built will start to speak to you and it can be a difficult leap to go from the structural experience of the system to the life experience of actually trading.
Here’s what I recommend:
Keep a good record of those trades where you’ve knowingly incorporated your intuition. The trades you skipped and the trades that you took should all be recorded. At the end of a trading cycle (day/week/month – whatever a cycle is for your timeframe) review those trades and see if they’re working to enhance your system or destroy it. If they’re improving what you do, you can rest a little easier and trust your instincts a little more. If they’re depleting your account, go back to your structure for a bit and when (not if) you start to feel intuition come back into play start keeping track again.
The caveat to this is that a certain amount of intuition will come into your trading over time whether you’re conscious of it or not. However, if you are noticing something other than your rules sneak into your trading, don’t disregard it entirely. Entertain it, give it a chance, it could be introducing itself for a reason and might go a long way toward improving your trading as well as your belief system about your ability to trade well.
What do you think?
Part 2 – Judging Intuition's Roots
