Developing intution in trading

[dc]I[/dc] want to write a few words today on intuition. This is a slightly thorny subject, because it is not easy to say what is right and what is wrong; one person’s approach to and experience of intuition may be very different than another person’s. I also think there is a lot of confusion and mystique around intuition in trading. Some traders use it as an excuse for not doing the hard work of trading, and others think that intuition, when they develop it, will solve all of their problems. Other people say it’s something you either have or you don’t, and say that intuition is the difference between good traders and great traders. I’m not sure any of these things are true.

I don’t think a dictionary definition will help us, but let’s agree at the outset that intuition is a different way of knowing than rational analysis. Reason lets us build step by step chains of logic. It is easy to examine each link in the chain of logic, and to find exactly where the chain might be weakest. Though two people might give different importance to different factors and arrive at different conclusions, it’s usually possible to at least explain your logical reasoning to someone else. They might disagree, but at least they will understand how you got to your conclusion. Intuition is different.

Intuition usually means we arrive at a conclusion without moving through those steps. We “just know”. If asked to explain an intuition, we are left with something like “I don’t know. It just seems that way.” It is often possible to logically justify intuition (not always), but that justification is not part of the process of arriving at intuition.

Reason can certainly be flawed, and intuition can also be wrong. It is possible to have a strong intuitive sense of something, and to be completely wrong. Intuition is not an infallible, magical window into the future.

I don’t think intuition is probably as magical as it seems. What is probably happening is that we are processing information and experiences on a different level and arriving at conclusions. The more experience someone has, all other things being equal, the more accurate their intuitions are likely to be. It is important that experiences are properly structured to train intuition correctly, and here we arrive at a serious problem for traders. The market has such a high degree of randomness that results do not clearly follow behaviors. Over a large sample size, yes, but the short run is a problem. You are likely to develop strong memories of exceptional trades and emotional experiences and anchor to those experiences. Ever get in trouble with a trade, hold on past your stop, double up, double up again, maybe do something dumb with options to top it off, and end up making a lot of money? (Hopefully not, but you get the idea.) Then you, my friend, are in a world of hurt because you’ve just done something very dangerous and had, at least on a subconscious level, a strong learning experience. Next time you get in a bad situation there will be that sometimes-not-so-quiet voice saying “psst. Hey you! Double up. It’ll be ok, and it feels so good when you win, doesn’t it?” It doesn’t even have to be that dramatic. Maybe you are trading with a system that has no edge but made a little bit of money–bad lesson learned. Maybe you did the right thing and lost money. It is impossible to overestimate the problems that the market’s nearly random reinforcement causes developing traders.

So you want to develop your intuition? Let me suggest today that you do it away from the market; let me give you some broad, general suggestions to awaken that spark of intuition. All of these are only guides, and, your mileage may vary. One important point, though: if you are going to do them, do them. Spend some time, devote yourself to theses experiences, and just see what happens.

  • Are you open to the experience of intuition? Do you live a life that puts you in touch, or at least gives you the potential to be in touch, with deeper states of knowing? If not, then here are your first steps. Spend some time in introspection. Think of times that you were intuitive. Think of small times when you knew things that there seemed to be no way to know, and you were right. Think about who you were in those moments and how it felt to receive this knowing, and write these lessons down in your journal. Do not rush this introspection; take your time and know that you are growing just from the effort of thinking about these types of experiences.
  • The experience of intuition can be very different for different people. Some people literally hear voices, some people have dreams, some people have other “sense of knowing”. For some people, intuition creeps in, but, in other cases, it can come in a flash. It is very common to experience intuition as a feeling in the body, and here is another problem: the “channels” that intuition uses are the same channels that emotions use. That empty feeling in your stomach when you are nervous? The flush of anger in your face and shoulders? The weakness in your legs when you are scared? If your body is noisy with emotions, it is harder to sense the message of intuition. Work on relaxing your body physically, and releasing the emotional blocks that stand in your way. Until you have made peace with your emotions, intuition may be elusive. (Notice that I did not say until you are free of emotions. That is not a goal and it is not even possible.) My trading course offers many specific exercises to move you in this direction, and, while you’re at it, why not meditate a bit, too?
  • For a concrete exercise, spend a few days in a heightened state of awareness. Quite literally, take everything you see around you as a sign, as if the universe is speaking directly to you. Where you will find messages? In the way the fork lies on the napkin when you sit down at a restaurant? In random words a cab driver says to you? Open a book, point to a page, and read a message there. The lady walking the brown dog on the red leash–what does that mean? Everything, literally everything you encounter in the course of a day, is the universe speaking directly to you. Now, you are probably thinking this is crazy, quite likely objecting, and, most of you have no intention of doing this exercise. That is ok, and that is the point. This is an exercise specifically designed to break you free of the tyranny of logical thought, to awaken the seeds of a new way of thinking and feeling. This is a powerful exercise that can open you to the experience of intuition. Oh, one more thing–that journal? Yes, write about this exercise.
  • Last, spend some time looking at random patterns and finding meaning. I will leave it to your ingenuity to find these patterns: clouds, tea leaves, patterns in dust or sand, birds flocking in the sky, the patterns of seeds inside a melon when you cut it open, the lines on the palm of your hand, arrangements of playing cards, ink blots, chicken guts… the specifics do not matter. This is an exercise to build visual intuition, and to open you to the possibility of new ways of knowing. Does this fly in the face of thousands of words I have written that caution you against playing into cognitive biases and against finding patterns in randomness? Yes, it absolutely does. (In fact, run along and look at some Elliott waves and Fibonacci retracements while you’re at it!) We aren’t going to live out here on the fringe, but there are some interesting lessons that we can carry back when we return to the “normal world.” Don’t be afraid to try new things and to be open to some potentially crazy experiences.

I think that’s enough for now. The key is to be open to possibilities and to actively work on cultivating intuition with intent. Do not try to apply this to trading right away. Expect that doing these types of exercises may unsettle you in fairly serious ways that you might not understand. There will be a time to integrate these lessons and tools, but, for now, I would caution you to be very careful not to let them color your experiences in the markets. Spend some time with these exercises–some deliberate, focused time. Work with intent and focus, and be open to whatever experience comes. Trust that experience and trust that it is absolutely right for you, right now. Even if you think absolutely nothing happens, accept that that is right, for you, right now. Spend some time here, and I’ll write more on this topic in the next few weeks.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

This Post Has 4 Comments

  1. Taoshum

    If you are really “using” intuition; you probably won’t know it, at least not at the time… If you could identify it, in the moment, then, it would have to be rational and objective.. but it’s not. If you are in the “zone”, so to speak, time loses any meaning.. Just ask an intuitive… they likely have no need to even know the day of the week.

    1. Adam Grimes

      I think what you say is a common attitude toward intuition, which is that it is basically so unknowable and “other” that you just have to take it as it comes. My experience has been different and my work (working with some “professional intuitives” too) suggests that reason and intuition can find a very constructive intersection. Why would it be so unknowable that you wouldn’t know if you were using it at the time? Yes, it can be crushed by reason, but reason can also be smothered by intuition. What we’re working toward here is a full understanding of both ways of knowing.

      Also, be careful of assuming that intuition equals flow, vice versa, or that intuition is only accessible from within the flow state. My experience again suggests that this is not necessarily true.

  2. A_Joe

    Great Post, Very Insightful ! Thank You !

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