Trading Intuition: Is It Profitable? // Ep. 11

In This Episode

• When intuition can cause losses and when it can save your butt
• Why beginners should never use intuition
• Is it better to follow a system exactly or go on “gut-feel?”

When Should You Use Trading Intuition?

A lot of new traders say things like: “I feel like the market will do ________.”

…and as we know, all over 90% of all new traders fail.

At the same time, we read in books like Market Wizards that elite traders had a “feeling,” which made them a lot of money.

So which one is it? Should we use our intuition or now?

In this episode, we talk about who should use their intuition and who shouldn't.

Read the Transcript:

Hugh: Hi, Walter. What do you think about intuition when entering trades?

Walter: Intuition. This is a tricky one. There's actually a really good book if people are into this. I think it's called  The Intuitive Trader. We can put it in the show notes for people who are interested.

It's not very long. It's kind of a small little book if you're into this sort of thing. I actually think the scientist comes out of me when I think about this because I think that we have a lot of biases that affect our trading.

Obviously cognitive biases. You can look those up. One of them is that we know when things are really going to go. Maybe you are right but the best way to find out is to test it.

So what I always encourage people to do is just keep it in your journal. What I mean by that is, if you think that the next trade you have ninety percent confidence, that the next trade is going to be a winner and unfold exactly as you see it then write that down in your journal.

When you have a couple hundred trades you can actually go back and you can group your trades by the ranking. So let's say all the eights, nines and tens out of ten, see if those had a higher win rate than the one, two, threes you know that sort of thing.

That would give you a good sense of whether or not you are right because remember the Turtles, — you guys can read about the Turtles obviously in the Market Wizards and the New Market Wizards by Jack Swagger. Those books, great books and all that. — they were taught, you know they were beginners of course.

They just didn't really know much about trading when they got into this and were trained by Richard Dennis and William Eckhardt. They were taught to go with the trade that they thought was least likely to go.

So if they were almost fully loaded and their risk rules only allow them to take on so much risk, they had to stop. And go, “Okay, if I have to take corn or soybeans and soybeans looks better to me, I think it's probably going to work out, go with the corn.”

That is what they were taught to do because Dennis and Eckhardt knew that we have these intuitions that are typically wrong at least in the beginning. I do think as you go, as a trader you can fine-tune them and get better. There might be an edge there but I think in the beginning, it's definitely not an edge.

Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.

At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.

So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.

Walter: And the open position ratios are a good point to that. People who follow the open position ratios among retail traders to me, that's a really good gauge of the trend. So when you see all these people going one way, it doesn't mean that the market is trending the other way but it often is.

So you know that intuition that we have as traders, I think in the beginning is probably not so good but maybe later on we can fine-tune that. How about you? I know you've been working a lot on your psychology.

What have you found in terms of like, do you have any data or you have any experiences in terms of locking into that and tapping into that as an edge in itself?

Hugh: I don't have enough data yet but I think it's exactly like you say. In the beginning you think you have the intuition and it's just, that's guessing but then later on, you develop some sort of intuition.

Nowadays, it's more like you have a feeling. If the markets are going to move in your favor or not. When I tracked it trading early has been, I've been right more than often than I've been wrong. So you develop that intuition going forward.

Walter: That's awesome. So far your data shows that you have a bit of an edge there with your intuition?

Hugh: Yeah.

Walter: That is awesome. That is great news. People sometimes ask me. They'll say, “Hey what do you think about just going total free ball? Just like, whatever you know you think is going on” and that sort of thing. I think that's a dangerous path if you just do that as a trader.

It probably could work if you had decades and decades and decades and maybe like I said, you've got good data to back that up. For instance right now, I'll tell you right now. This week as we're recording this, I have a bias on some charts.

Like the AUD/CAD, the Aussie-Swiss. A couple of other charts. CAD-Swiss is another one where I want to sell but I look at the chart and I say, “If I didn't have my sell bias, that actually looks like a really good buy.” It's hard for me to watch the market march and go up for the last couple of weeks.

As I'm waiting for a reversal signal to sell and write it down but that's because I've got my bias. I think you really have to decide and sometimes you can do both like you can say, “Okay, I have my systems that have my rules and this is my account that I'll do that in” and maybe you have an intuition account.

If you have enough data that suggests that you're good at that, maybe do that and see. Just have a race. See which one is going to make more. See which one over time comes out ahead. Maybe that's the way to go. I don't know but I think definitely, you’ve got to be scientific about it.

You’ve got to test it. You’ve got to make sure that what you think is going on is actually going on because it is so easy. As we know when you find a new system or new indicator, you scroll back on the charts you are like, “This thing is gold.” It never works out that way. That's it.

Hugh: Okay, cool. Thanks, Walter.

Walter: Thanks.

Hugh: All the information in this podcast is for educational and informational purposes only, and is not trading or investment advice.

Link to the book The Intuitive Trader: https://www.booktopia.com.au/the-intuitive-trader-robert-koppel/book/9780471130475.html

Enter the Monthly Contest

We give away a trading prize every month, so be sure to enter to win.

You can win by doing one or more of the following:

• Leave a comment on YouTube
• Leave a review on iTunes

Each action counts for one entry in the month that it was posted. We will pick a winner at random from the entries that month.

The giveaways can include books, coaching sessions, trading tools, or surprise gifts.

It will usually be something that will help you improve your trading psychology. 

Listen to the Audio Version

Click the play button below to hear the audio-only version. You can also download the mp3 file below.

Podcast: Play in new window | Download

How to Get New Episodes of The Think Profit Podcast

You can get notified of new episodes of the podcast by subscribing to our email list, or subscribing via any of the major podcast platforms that can be found here.

If you enjoyed this episode, a 5-star review on your favorite podcast platform is always greatly appreciated!

Thanks for listening and we hope that your trading is going well!