Intuition is a tricky subject, because there’s no way to prove or disprove that it exists.
Consider however, that there’s a strong psychological incentive for human beings to provide an explanation for coincidences: we want to feel in control.
A mother loses her child at the mall, but soon finds him again.
“I just knew where to look. It’s a mother’s intuition.”
A man who doesn’t gamble is suddenly inspired to buy a lottery ticket, and wins $10,000.
“I don’t know, something just felt different that day.”
A trader bets against the Bank of England, and walks away with more than a billion dollars.
“My gut told me it was the right move.”
With so many examples of success by intuition, it’s no wonder people try to get an intuitive feel for everything they do.
“Just one more round. I’ll make back everything I’ve lost… I know I will!”
With all the spotlight on intuition-led success however, all the other cases of intuition-led failure get ignored.
No one pays attention to the mother who was unable to find her lost child. Nor to the people who “felt different” but didn’t win the lottery. Nor to the traders who had a “gut feel” but lost a whole bunch of money.
What makes intuition so seductive, is that it appeals to human laziness. Why bother to apply the tedious work of logical examination, when all you need to do is “feel” the answer?
Now, I’m not saying that real intuition doesn’t exist. I don’t know if it does or not.
What I do know however, is that the “intuition” card is a dangerous one to play in the world of trading.
When amateur traders try to get a “feel” of the market, more often than not, all they’re really doing is avoiding the hard work of tracking, analyzing, correcting and improving their trading process.
The natural tendency is for people to indulge in the idea of intuition, because intuition is easy. No hard work or logical analysis is required. You just need to “feel” it.
Cognitive Reflection Test
Consider these questions. Try to answer them before you continue.
- If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets? ____ minutes
- A baseball bat and ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost? ____ cents
- A magic drop of water is placed in a giant container. Every day, the drop of water doubles in volume. If it takes 48 days for the drop of water to completely fill the container, how long does it take to fill half the container? ____ days
Do not continue until you’ve decided on your answers.
Each of these questions have an obvious (intuitive) answer, and a correct answer.
Let’s take a look.
Question 1: Intuitive answer: 100 minutes ; Correct answer: 5 minutes
Question 2: Intuitive answer: 10 cents ; Correct answer: 5 cents
Question 3: Intuitive answer: 24 days ; Correct answer: 47 days
Well, how did you do?
The danger of “intuitive” decision making
Intuition seems to work via the subconscious recognition of patterns.
For example, each of the questions above follow an obvious pattern that leads to the wrong answer. The intuitive answer “feels” right, but is logically wrong.
As I mentioned earlier, I don’t know if real intuition exists. The thing is though, that even if it does, I have no idea how to attain it.
So as much as I can, I prefer to rely on logical thinking and trial and error. It’s not as elegant as simply “using intuition”, but it’s the most reliable way to get results.
As far as I know, trading is not about betting on one inspiring idea and winning big, but about slow and incremental testing, tweaking, and adaptation.
In movies, the hero wins after getting a great idea and beating the bad guy in a grand final showdown.
In real life trading, you win by keeping your head low, putting in the work, and quietly outlasting everyone else.