Heard this interesting interview and thought I would share. Canadian neuroscientist and former Wall St trader John Coates’ found that gut feeling is more than just a feeling but actual physiological signals or information coming from your body. Traders attuned to them do very well:
"Within the cohort of traders we found that [gut instinct] was predicting the relative profitability and strikingly, how long they were surviving in the markets," says Coates "So we think the financial markets might be selecting for this trait."
Trusting your gut/gut instinct is not exactly a new idea but up to this point it has always been dismissed as some sort of analogy or saying as this WSO thread suggests.
I am sure there is more to it than JUST physiological signals since training and years of experience can make a lot of things appear automatic, most likely a combination. However, I was curious, any traders can attest to this? Feel like your gut is the source of your success?
What does gut instinct have to do with being a successful trader?
Check out Fooled by Randomness by N. Taleb. You'll get a fairly sophisticated answer to your question there.
Hi VolSurface, seems like an interesting book. From skimming the description it sounds like what I was warned as a scientist to be cautious about, over interpreting your data. The difference between causality and a correlation. For instance, just because we find a correlation between eating peanut butter and high IQ does not mean one causes the other. Thanks for the rec!
Part confirmation bias, part trained subconscious pattern recognition. Depends on whether you're asking a mechanical or a discretionary trader.
IMO trusting your gut can be the reason to succeed or fail. Same as poker players. In finance though it is all about risk/return. Maybe same as poker again
p.s. I don't use DCF when playing poker
I would love to play you in poker.
They aren't talking about normal gut instincts--those are by far the leading cause of failure for aspiring traders--they are talking about intuition. Intuition that comes after thousands and thousands of hours of screen time, hundreds if not thousands of trades, years of studying and working with and around the markets through all sorts of volatility. At that point, yes you'll develop a feeling that emerges at certain points, one that you don't follow with reckless abandon, but one that can override your current thought process on an active or potential trade. This isn't unique to trading. Take good mechanics who can hear a difference in how your car should be running or a cardiologist that can hear something a GP will never be able to. Bottom line, you need to have done the legwork, achieved success and then overtime that develops. It's not going to "make" your career, but once you get there, it'll boost your income a helluva lot.
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ArcherVice, thanks so much for your insight! It would be interesting to see if this result was based on just experienced traders or if they compared someone new to the job versus the veterans.
The 'gut' he was talking about is something that develops after a lot of experience. A new person following their gut is wildly guessing, there are no prodigies.
Whatever the hell decisions you make, they always need to be backed by your thorough research. When shit hits the fan and your boss asks you what happened, the last thing you want to say is you followed your gut.
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