A Quantitative Approach To Intuitive Trading – Part 5/5

Intuition in real life

When applying intuition to daily life three problems are readily apparent:

  1. A very limited and distorted set of data to use for training
  2. Figuring out what subset of that data is relevant to future decisions
  3. A profound difficulty in back-testing any “system.”

With those seemingly insurmountable problems in mind it’s tempting to throw in the towel. However, evolution has already wired a number of time-tested unconscious decision-making heuristics into our brains. They get a bad rap in behavioral finance (even though how problems are presented can dramatically alter the results), but after a million years in beta testing they can work quite well in day-to-day life. Looking at a single photograph of someone allows better than chance guesses about intelligence, honesty, and other traits, so there’s no need for you to go through 10,000 intimate relationships in 5 years, or 10,000 jobs (though some might hope for the former), in order to develop decent intuitions about many decisions in everyday life.

Practice by following some of the everyday intuitions and feelings you get. If someone coming toward you on the street gives you a weird vibe do something to avoid their trajectory. If someone on the job rubs you the wrong way make up some excuse to avoid them, and if someone strikes you as worth more of your time arrange things to facilitate it. For whatever reason, acting as though intuitions mean something to you brings them more clearly to the fore in your mind.

With evolution providing much of the training off the shelf, the biggest impediment to implementing an intuitive approach to life is the mass of culturally transmitted assumptions acquired while growing up. Jobs should be evaluated on pay, career progression, and industry vitality. You aren’t a success unless you have an expensive car and at least an n+1 car garage (where n = number of household members). Everyone has hundreds of unstated assumptions about the world. They may have begun as good rules of thumb for another person, another era, or simply as part of our evolutionary heritage, but shouldn’t automatically be limiting principles in your own life. Learning to see your life as an outsider would, preferably one from another planet, is a valuable skill for taking control of your life.

What isn’t so apparent with the intuitive approach is that the mental housekeeping required, along with learning to listen to your intuitions, may not lead you where you intended. I started down the path to intuitive trading with the sole intention of improving my trading results and twice the process of resolving internal conflicts ended with me quitting trading for a significant period. In both cases my life was significantly improved as a result, but not by the means I had imagined. Life often seems to involve its own uncertainty principle: You can get what you want or choose the means used to pursue it, but never both.

I think most dissatisfaction in life comes from the confusion of means with ends. The things most often dreamed about or striven for are in fact only the means to some unrecognized end (and often the wrong means). In early human conditions of extreme scarcity a mass of stuff was a means of survival, today it’s more a measure of how well you’re maintaining your pace on the treadmill. Become a two-year old again and keep asking why. Why do you want this or that? If you keep pressing the issue long enough, the answer is often something you could already have.

For a modern brain burdened with multiple layers of conscious rigmarole, learning to listen to intuitions, evaluate them without prejudice, and trust them enough to act upon them is a big hurdle. But in my experience it’s inevitable that successfully using those skills in the market will percolate through the rest of your life, and the mental housekeeping needed to go with the flow in the markets will make life flow more smoothly as well. For me that’s been a far greater benefit than the contents of my trading account.

Wrap up

The best one line summary of my approach is that I analyze everything to death before going entirely by feel. I’ve tried to eliminate myself from the process and spent a number of years trying to automate my intuition but I’ve never succeeded. As far as I can tell my unconscious is using a weighted consensus system where both the weights and which elements are polled is constantly changing based on news, market action, a variety of technical indicators, and the passage of time, which are themselves fluidly weighted. More or less. Probably.

I certainly don’t recommend intuitive trading for everyone. If what you are doing works for you, keep doing it. If you can’t seem to follow any other method because you keep sabotaging yourself in some way and intuitions are often to blame, work on the training and other steps I’ve outlined. It could be just what you’ve been looking for. I can’t emphasize enough how important resolving internal conflicts is for intuitive trading, and it’s equally important in getting what you want from life in general, so there is really no excuse for not addressing them.

Finally, I want to apologize for the inconsistent terminology I’ve used in this series and for leaving so many things inadequately explained. This is the first time I’ve tried to present it for public consumption and it probably shows. I almost never feel something deserves a book-length treatment but this topic probably does – just don’t hold your breath waiting for me to do it. If you have any questions leave a comment or feedback and I’ll do my best to answer coherently.

I’m glad this series is finally done. As my father told me when I headed off to school, “Good luck and good riddance.”


The complete series: Part 1, 2, 3, 4, 5


One thought on “A Quantitative Approach To Intuitive Trading – Part 5/5

  1. Pingback: Pseudo Random News and Comment | Mortality Sucks

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