MIND TRAPS

INTUITIVE TRADING

Intuitive trading is a natural response to excessive randomness and non-linearity in the market. But making informed guesses is not the same as formulating a rule-based pattern-recognition system that gives a trader a true edge. Without a rule-based plan, intuitive traders expend a great deal of energy mindreading the market, which will not improve your odds of success. In fact, professional traders make a good living exploiting the emotionally-driven behavior of intuitive amateurs.

Many people who come to trading have been successful in other careers and think their business skills will help them succeed. Unfortunately, this is rarely the case. Neither prior success, IQ, market savvy, maturity, creativity, management skills nor any other business leadership qualities will prepare you to succeed as a trader. Instead, they are more likely to set you up for failure. Why?

That orderliness and predictability is just not present in the market environment. Quite the reverse. One is much more likely to encounter paradoxical and unpredictable reactions to news and other obvious catalysts. Markets can reverse on a dime for no apparent reason. Trying to make sense of the market can drain all your mental reserves.The world of modern business rests on principles of social order and behavioral predictability that simply do not exist in the trading environment. For example, if you drive a car, you have been conditioned to expect a certain minimal amount of orderly behavior from your fellow motorists. Along with you, they will stop on red and go on green; they will stay inside the white lines; they will mostly drive near the speed limit.

Compared to the business world, the signal to noise ratio is much poorer in the markets and cannot be filtered to achieve a comfortable predictability. Perhaps the best preparation for trading is martial arts or combat experience because both teach us to expect the unexpected.