In times of uncertainty, people seek clues not only from the outside, but also from within themselves. The inner voice that guides us on what to do – should we listen to it when it comes to stock trading? What is intuition? If we do not bring in the third eye, the sixth sense, and a connection with the cosmos, then we can say that intuition is a subconscious skill developed after processing a large amount of information. For example, an experienced driver who automatically reacts to changes in road situations, hardly having time to fully realize what is happening. A boxer who reflexively dodges a blow, hardly catching a glimpse of the opponent’s raised shoulder from the corner of his eye. A soccer goalkeeper, by the position of the body of the ball striker, already senses which corner of the goal he should jump to.
During constant practice, the brain notices thousands of small connections, like “If I see A, then B will follow”. Those that occur most often are embedded in the subconscious. Therefore, the next time A appears, the brain strongly signals that B is coming soon without bothering to explain exactly why.
Usually, self-learning happens hidden from consciousness, so it is unlikely that listed athletes could explain exactly how they predicted the course of events. They simply knew. Likewise, sometimes we know what decision to make, what words to say, and what result to expect. According to stereotypes, women are more successful than men at this. By the way, they also do better in investments. Is this a random coincidence or not?
Intuition and Trading
Professional asset managers with CFA and MBA degrees would scoff at the idea of trading based on intuition. However, intraday traders often mention how they sometimes feel they know exactly where the market will go next – and it makes them money. So, what’s the difference? As the definition suggests, intuition is the result of processing a vast amount of information. This means that two components are essential for its formation: enough information and the ability to process it. The larger and more homogenous the sample of trading situations, the better.
When it comes to long-term investments, each position is unique and its outcome is spread over time. An investor doesn’t have the opportunity to quickly receive feedback on decisions made, so skill development happens solely through conscious methods – through studying materials, historical examples, and consulting with professionals.
In contrast, short-term trading provides traders with a wide range of market situations over a short period. Moreover, immediate feedback is available: if it works out, they profit; if not, they suffer losses. Over time, the subconscious mind can create a model for making trading decisions based on this data, which will gently guide the trader behind the scenes.
Intuition or Guesswork
How can we distinguish between intuition and guesswork? There’s a simple test.
You can ask yourself, “What is my intuition based on? Do I genuinely have experience that provides a basis for relying on my gut feeling in this matter?” If the answer is positive, then it’s intuition; if negative, it’s more likely an attempt at guessing.
Another way is to keep a journal observing your intuitive hunches and tracking the ultimate outcome. If the hunches are correct more often than not, then it’s worth considering following them.
However, there’s a risk — the more the mind focuses on intuition, the more it interferes with the decision-making process. Therefore, it’s essential to be cautious in trying to understand the nature of our thoughts so as not to disrupt the intuitive mechanism.
How to Enhance Intuition
Can intuition be trained? We have identified the following factors necessary for developing intuitive skill.
1. Clear goals.
When there’s a clear goal, the brain starts to search for connections that lead directly to it. The goal must be specific and practical. “Make a lot of money” — is vague. But “identify the breakout moment from a sideways trend” — is better.
2. High concentration.
It’s important to immerse oneself deeply in the process and not be distracted by external factors. This doesn’t mean sitting in front of the terminal all day. You can allocate just an hour, but during that hour, focus solely on the market.3
3. Swift feedback.
The faster you receive feedback, the better. No matter how deeply an investor delves into the process, it’s difficult for the brain to hold information in focus for a long time, which means catching cause-and-effect relationships. It’s important for the investor to remember well the premises guiding their decisions until they receive feedback.
4. Balance between tasks and skills.
It’s not worth training intuition on trading with complex and incomprehensible instruments. This may confuse the brain and lead to incorrect models, or it may even refuse to make decisions, leaving everything to the conscious part.
5. Rest in a scattered mode.
After concentrated work, the brain needs to process the information received in a calm state. It’s important to schedule breaks during the day when the mind is in a scattered state.
You can take a walk in the park, have a cup of tea (without a phone nearby), gaze thoughtfully out the window, take a bath, or listen to light music. While the brain is not overloaded, it will be in the background building new neural connections that intuition will rely on.
Conclusions
Intuition and stock trading are entirely compatible, so both investors and traders can sometimes rely on it when making decisions. Investors rely on it when assessing the probability of various corporate events occurring, while traders use it when choosing entry points and optimal moments for transactions.
It’s important to remember that intuition is not idle speculation about where one might earn more. It’s a subtle sense that develops only after persistent work with high involvement. This skill is very useful, but it does not replace competence, thorough analysis, attention to detail, and careful risk management.