Intuition and Trading

[Soultrader 12]

I want to dedicate this thread to any discussions based on intuition in trading. (especially day trading) Intuition in trading, just like any other sport, game, or profession take years to develop. It's the gut feeling you get when you know you're right but can't explain it in words.

 

The definition of intuition is open to further discussion. I would like to discuss when intuition comes into play in your trading. Perhaps its getting that feeling you are wrong before youre stop is taken out. Or sensing weakness and a possible reversal through price observation and tape.

 

How many of you here are able to identify when intuition kicks in? Are there times when you take trades based purely on intuition? (different from impulsive) Do you sense market strength or weakness based on intuition? These are a few questions that interests me.

 

I recently went over my trades on the YM. Approx 90-95% of my trades are based on my setups. However, I noticed that the remaining 5-10% are trades taken based on intuition. One common trade was buying/selling inside a tight consolidation because I "felt" the market was going to break. And suprisingly, the majority of these trades have been successful. I do want to clarify that the trade wasn't an impulse trade.

 

The most common times when I identified my intuition kicking in is on losing trades. A good amount of times, I tend to exit early on losing trades before the markets stop me out. I find it very hard to explain why I decided to exit early besides "I felt I was wrong". 90% of the time, exiting early was the right choice.

 

I would like to hear some of your thoughts or experiences with intuition and trading. Thanks

[TinGull 10]

The most common times when I identified my intuition kicking in is on losing trades. A good amount of times, I tend to exit early on losing trades before the markets stop me out. I find it very hard to explain why I decided to exit early besides "I felt I was wrong". 90% of the time, exiting early was the right choice.

 

I feel the same about this. My heart starts pounding, my throat kind of clenches up and I just know it's not a good situation. I'm not good at feeling the good trades, though. Just knowing a bad one that I got into for sometimes a wrong reason, without thinking of it before hand. That's when I'll gladly take -1 or -2 and be happy it didn't turn worse.

[Reaver 10]

Like James Dalton says in Mind Over Markets regarding intuition, he compares it to Mike Singletary knowing how to read an offense without even really thinking about it because he has studied it to the point of second nature. I have heard alot of people say "intuition" is the downfall of traders, but that is ridiculous in my opinion, at least for a trader that uses his brain to draw up a strategy based on market condition.

[Anna-Maria 10]

I think if you trade a particular instrument or candidate on a pretty regular basis over time, & your set ups revolve around repetative triggers etc, the subconscious kicks in.

 

These ingrained behaviour traits (especially based around price activity at key levels & patterns) tend to form alerts, & whether we realize it or not, illicit a response/reaction to a previous consistant behaviour pattern.

 

I guess those who eventually begin to notice this type of behaviour tend to be traders who adhere to a well honed & developed strategy-plan.

 

Nothing like wrapping a workable set of rules, trade plan & repetative structure around you to focus the mind

[Anna-Maria 10]

I meant to add:

 

A good indication of this is when studying your bottom line results log. By that, I mean once you've been trading for a while & attain an acceptable level of consistancy, you'll notice a pattern appearing.

 

The win-loss ratios, peak to valley drawdowns, total % profits & typical positive set up expectancies should be pretty close to an avg line.

 

Taking out irregular market behaviour (which will skew short term results), the 12mth accounts should be pretty much balanced.

 

A good % of this consistancy can be attributed to a traders psychological maturity & symmetry with their normal plan-structure model.

 

And again, this type of behaviour will be due in part to the instincts gleaned by familiarity with the chosen instrument/candidate.

 

Well, that's my take anyhow!

[redlew 10]

Great topic Soultrader.

Intuition is a great tool. Developing it is not so easy. When I am in a losing trade and intuition tells me that I should bail before my stop is taken out, intuition battles with hope. When I am in a winning trade that is developing slower than I want (I want that profit now! )and know that I should be patient and not take profits too soon, intuition battles fear and greed. It is a tough balance to find. It is also easy to think that I am having intuition when I am not finding any set ups to trade and just on the sidelines watching. Experience is the filter for intuition.

The link that follows is for a gal that specializes in the psychological aspects of intuition and trading. Go to the Press and Papers section and check out her stuff. I think it is good stuff.

http://www.marketfocusing.com/main.html]MarketFocusing

[Soultrader 12]

When I am in a losing trade and intuition tells me that I should bail before my stop is taken out, intuition battles with hope. When I am in a winning trade that is developing slower than I want (I want that profit now! )and know that I should be patient and not take profits too soon, intuition battles fear and greed.

 

I have to admit... it made me smile. Very good point redlew. How many times have false hope clouded our judgements? It's amazing when I know I am so wrong but yet I continue to search for clues of false hope. The mind definitely plays tricks on me.

 

False hope and myself... we get along pretty well. These days I just talk to myself "Here goes that false hope again..."

[fatdog1 10]

I think if you trade a particular instrument or candidate on a pretty regular basis over time, & your set ups revolve around repetative triggers etc, the subconscious kicks in.

 

These ingrained behaviour traits (especially based around price activity at key levels & patterns) tend to form alerts, & whether we realize it or not, illicit a response/reaction to a previous consistant behaviour pattern.

 

I guess those who eventually begin to notice this type of behaviour tend to be traders who adhere to a well honed & developed strategy-plan.

 

Nothing like wrapping a workable set of rules, trade plan & repetative structure around you to focus the mind

 

HiTex and everyone else,

Great thread Soultrader.

Yes to the repetative trigger part, for sure. The problem is that sometimes the trigger needs an adjustment like adding a filter when the market is jumpy.

I have noticed that my automated strategy has taken a ton of losses after entry due to the volatility recently. Premature exits also. When you see that happen, it is time to go back to the manual entries and work on adding a filter. Has anyone else noticed excessive slip lately?

 

Have a good day,

FD1

[Anna-Maria 10]

HiTex and everyone else,

 

I have noticed that my automated strategy has taken a ton of losses after entry due to the volatility recently. Premature exits also. When you see that happen, it is time to go back to the manual entries and work on adding a filter. Has anyone else noticed excessive slip lately?

 

 

Hi Steve,

 

We focus solely on the currencies, and wrapped it up towards the end of 1st week Dec, which has become a normal habit over time. So we haven't been affected by the usual thin conditions leading into year end.

 

Again, August causes problems with diluted volumes & it's a case of either standing aside, reducing potential profit expectations or switching to a shorter strat framework.

 

My brother got tangled up a bit during mid Oct (Cable) with a few false starts, but then it's to be expected every now & then.

 

What kind of filters do you operate in such conditions? Are they worked around your automated model or structured alongside your manual execution.

 

I tend to change tack slightly when the mini (hourly) trends begin unseating me. Maybe drilling down a timeframe or two & booking 1st line profits earlier, whilst trailing the remainders a little closer until the field opens up again.

 

Always a very annoying & frustrating occurance, but thankfully, not a consistant problem on the majors.

[Buk 10]

I think maybe fatdog1 was referring more to the index ftrs regards those comments Anna??.....might be wrong

 

but one or two of the issues affecting the FX markets will undoubtedly have a bearing on instruments across the board........

 

structural factors have definitely impacted FX prices over the past 2-3yrs, not surprising that ranges have contracted really....I guess the main culprits being interest yield spreads!

 

certainly if the FX pairs/crosses suffer smaller carry trade margins, we'll experience heavier range bound markets & lower volatility....the graph below highlights that issue quite well.........

 

 

marry that up with increased Central Bank exposure/jawboning every time their repective currencies skew outside acceptable boundaries, & include the uptick-popularity of FX via the retail sector on the back of aggressive marketing from the industry bods (shops etc), & you have yourself a heady cocktail.........

 

any one of those major factors alone would be enough to slow the ship.....but all 3 on the crib sheet, little wonder the volatility has subsided.....

 

you get a rush of fresh & constant inflow of $$'s into the mix & that will unviel a shoal of buyers & sellers at each important number on the charts.....in my book that equals less choppy markets & increased spike potential during below par liquidity periods..........

 

the only item which will keep these instruments bouyant over the medium term will be the focus of interest rate differentials.....or rather the shift in them

 

as long as there's differing global economic positioning around inflation, growth expectations & internal deficit margins, then we ought to experience semi-decent periods of price wiggles........that will go some way to keeping the currency & bond kiddies on their toes!.....if that ever slows though, we're really in for some heavy snooze time!!

 

I guess as more Central Banks look to diversify out of $$'s over the mid term, it might create a few more sparks across all the market candidates........

 

but I wouldn't hold your breath to a swift return to the heady heights of daily ranges extremes of a couple yrs back - not if the recent collection of figures below is anything to go by........

 

harks back to what we were saying in 4th quarter 05......'flexibility & reactive strategy implementation are the priorities'.......if not, your bottom line will reflect the unwillingness to accept that change in market behaviour!

 

[fatdog1 10]

Hi Steve,

 

We focus solely on the currencies, and wrapped it up towards the end of 1st week Dec, which has become a normal habit over time. So we haven't been affected by the usual thin conditions leading into year end.

 

Again, August causes problems with diluted volumes & it's a case of either standing aside, reducing potential profit expectations or switching to a shorter strat framework.

 

My brother got tangled up a bit during mid Oct (Cable) with a few false starts, but then it's to be expected every now & then.

 

What kind of filters do you operate in such conditions? Are they worked around your automated model or structured alongside your manual execution.

 

I tend to change tack slightly when the mini (hourly) trends begin unseating me. Maybe drilling down a timeframe or two & booking 1st line profits earlier, whilst trailing the remainders a little closer until the field opens up again.

 

Always a very annoying & frustrating occurance, but thankfully, not a consistant problem on the majors.

 

Hi Texxas,

 

I have a few triggers for entry based on candle patterns and volume

that I use to enter in the automated strategy. Lately, the indexes and currencies are overshootting the places that I normally place the initial stop loss. It happens now and then and it takes the repeative part out until it settles down.

 

Steve

[Anna-Maria 10]

& include the uptick-popularity of FX via the retail sector on the back of aggressive marketing from the industry bods (shops etc), & you have yourself a heady cocktail.........

 

the only item which will keep these instruments bouyant over the medium term will be the focus of interest rate differentials.....or rather the shift in them

 

I guess as more Central Banks look to diversify out of $$'s over the mid term, it might create a few more sparks across all the market candidates........

 

 

Yeah, the increased volumes from the tiered shops has had a noticeable impact for sure, agreed.

 

There's a common denominator to your two following comments which will always tend to impact short term volatility however, & that is the strong emotive trigger which in some ways ties in with the title of this thread:

 

Often it's not a case of traders planning around the "actuals" of an important prospective shift in market moving sentiment, but rather the "anticipation or speculation" which drives price extremes in the near term.

 

OK, so it might only be a short lived occurance every now & then, but there's nothing like rumor & scare mongering to stir the Bull-Bear tug-o-war game.