Just as one might have to turn the whole body round in order that the eyes should see the light instead of darkness, so the entire soul must be turned away from this changing world until its eye can bear to contemplate reality.
PLATO
A skilled operator in any field acquires an almost instinctive "feel" which enables him to sense many things even without being able to explain them.
BERNARD BARUCH
The really valuable thing is intuition. There are no logical paths to these laws, only intuition resting on sympathetic understanding of experience can reach them.
Intuition is a sublime virtue that a lot of traders have false beliefs about. All beginning traders confuse intuition with "into wishing." It is extremely easy for the novice trader to listen to the thoughts and desires of the unconscious mind, and enter or exit a trade because of "gut feel." However, every outstanding trader possesses intuition and uses it on a daily basis. Even the great system traders who are totally mechanical use intuition in developing their computer- based trading methodologies.
However, many traders confuse an impulsive or irrational thought that originates in their unconscious mind with a valid intuitive thoughtafter all, intuition is a spontaneous thought originating in the unconscious. The ability to differentiate between the two is often sublime and illusive. Your unconscious mind is always seeking excitement and action, and is very effective at convincing you that you have a really strong intuitive feeling about what the market is about to do. I cannot stress strongly enough that all new traders should ignore any and all intuitive (gut) feelings about trading the market. The only intuitive thoughts that a new trader should act upon are those they can use to develop a methodology.
If you are just starting out, write down all your intuitive thoughts concerning the market in your trading journal. Continue to write your intuitive thoughts on the market for the next 12 months (at a minimum). After several months, start reviewing your journal so you can begin to generate your references about the quality of your intuition. You will begin to see how well your intuitive thoughts and feelings perform. Then after you have worked at increasing your virtues and creating empowering beliefs and are consistently making money over the next 12 months, come back to this chapter and reread it. New traders should use their intuition to develop their trading methodology, not to enter into or exit a trade. Believe me, your bank account will be happy that you did!
Intuition is a very important part of every trader's life. It is what allows you to grasp a concept and implement the concept without understanding all the underlying principles. It is what allows you to recognize a certain behavior of the market even before all the
characteristics of that behavior become obvious to your conscious mind. Intuition is what allows you to override your methodology once in a blue moon, thereby increasing your profit or avoiding a loss. Intuition is what allows you to have the breakthrough in designing your trading methodology and, consequently, dramatically increasing its profitability.
In a book written by Jack D. Schwager, Ed Seykota summed up the danger of intuition perfectly: It is very, very easy to confuse intuition with
"into wishing." Your beliefs about yourself, unless controlled, will always want to make you believe that you are the most perceptive trader who ever existed. If your unconscious mind can convince your conscious mind to take action, then it will feel wonderful. Your
unconscious mind will forget the dozens of losers those "gut hunches" generated (blaming it on other factors), and will remember the one or two winners.
So what exactly is intuition, and how can we become more intuitive? Intuition is increasingly recognized as a natural mental faculty. Intuition is a key element in discovery and problem solving. With the rise of computer power available to the general population, and to traders in particular, the belief that logical arguments and rational programs can be developed to win at the trading game is almost universal. All the books, seminars, and computer programs have so skewed the thinking of most traders that they believe the only possible way to generate consistent profits is by a rational, logical, and sensible trading methodology. Psychological studies tell us that everything we perceive is an interpretive act. Our
say that sugar is in a bear market, and another trader looking at the same exact chart will say that the overall trend is bullish, and that it is only in a correction! For some of the great traders, intuition has done wonders. If reason and empirical observation have set the agenda for trading, and the trader's passion has provided the fuel to do the reasoning, then it is intuition that provides the creative spark of genius.
In the trading universe there are two types of outstanding traders. One type will build up a trading methodology slowly with painstakingly researched facts, much like the tiny marine animals build up a coral reef. The other type will also begin building a trading methodology with carefully researched facts. However, at some point these traders will make a leap of intuitive logic that allows them to soar like eagles.
When we hear or read about great traders, we are seeing the public view. We see the profits that they have made for themselves and/or their clients. We are seeing the final result, which is logical and orderly. We would not see all the false starts and dead ends, all the vague hunches that have been tested and sorted out. As a result, we would conclude that our
research must be methodical and logical as well. This is a mistake, since it is our imagination and vague, intuitive thoughts that lead to the discovery of a great trading principle!
There is no logical method of obtaining new ideas. Every discovery about the market will contain an irrational element of creative intuition. All great problem solvers are able to make advances in their discipline by perceiving the
difficulties, knowing which questions to ask, and understanding how to frame the problem in their mind. Intuition helps traders solve the challenge by deciding where to look for the relevant facts, how to test an idea, 'how to interpret the data, and how to recognize what is important and relevant.
Do you know why Ray Kroc purchased McDonald's despite the advice of his friends? Because he decided to listen to the feeling in his "funny-bone." Let me ask you another question: Does the market exist solely in a "material world" that allows it to be measured, quantified, and defined with precision, or could it be something else altogether? Could it exist only as a manifestation of the beliefs of all the traders involved? Stop reading right now, and take the time to think about it before answering.
The way you answer will tell you a lot about your perception of the market, and how your trading methodology will probably evolve. Your answer will also tell you how your ego wants to perceive the market.
The rational-empirical mode of thinking works best when you can control or predict all the variables that affect the subject you are studying, when you can measure, quantify, and define these variables with precision, and when you have complete and timely information. As we covered in the first chapter, there is no holy grail. The trading market represents hundreds of thousands of variables that no one can predict, quantify, or measure with precision. As an aggregate we can to some degree come up with a representation that can measure, quantify, and define the market. However, since it is an aggregate we are unable to predict with 100 percent certainty what will transpire. Consequently this mandates that a trader work in probabilities.
When we attempt to trade using a methodology that is based solely on the rational-empirical mode, we are setting ourselves up for a lot of frustration. What we are attempting to do is apply a science that was designed to deal with the physical world, and extend it to a nonmaterial, nonquantifiable world. When we attempt to trade exclusively on the rational-
empirical approach, we will not be able to deal with critical and nonquantifiable
considerations such as perceptions of other traders, the prevailing continuity of thought, and the overall market psychology.
The degree to which you are able to penetrate the transcendent and illuminate the sublime aspects of the market will depend on your success in developing your intuitive skill. The trading environment is a reflection of the opinions (beliefs) of all the traders involved. The traders' opinions will cause them to be (1) sitting on the sidelines watching, (2) already committed 100 percent in the market, (3) in the market but waiting to commit more funds, (4) in the market waiting to exit fully, or (5) in the market and wait
ing to partially exit the market. These traders could have a profit or a loss, and their opinions will reflect this fact.
Since the trading environment is a reflection of the participants' opinions, the trading waters become muddied. Strict reliance on logical and quantifiable arguments will more than likely impede the trader's vision. Intuition gives the trader an edge, leading to better decisions, more creative ideas, and better and deeper insight. Often when traders start to consider how intuition could benefit them, they also have a certain amount of fear. This fear typically is caused by the thought that intuition is the first step toward intellectual anarchybecause it is arbitrary and nonquantifiable. In the case of the novice trader there is solid justification for this fear. Many new traders will use what they think is intuition as an excuse for their failure, and often they are partially correct. This "intuitive thought" was in fact the ego, which attempted to balance disempowering beliefs of the conscious mind against the unconscious desires and thoughts within a mental context that lacked integrity and discipline. Consequently the new trader is convinced that it was a valid intuitive thought when in actuality it was nothing more than an impulsive thought created by the unconscious mind. Intuition will start to work only after traders have mastered their virtues, vices, and the ability to trust themselves to always act in their best interest. This requires mastery of their beliefs.
Outstanding traders will realize that there must be a balance between the intricate and mutually enhancing relationship between intuition and rationality. They will know that they need a sharp discriminatory rational ability, as well as a better level of intuition. In this manner each ability will supplement the other's strengths.
When we think of intuition we typically think that it follows rationality. You will reason, analyze, gather the facts, have an intuitive thought, then analyze and use reason again so as to verify, elaborate, and apply the intuitive thought. This type of intuitive thought is usually categorized as a "Eureka" experience. However, intuition cannot be confined to the "Eureka" type. Often intuition feeds then stimulates your rational thought, causing your rational conscious mind to evaluate what comes from the intuitive thought. Rational and intuitive thought are both parts of your thinking process, originating in different parts of the mind. Think of how often you have had insufficient information and not enough time to get all the facts, yet by skipping many of the intermediary steps that strict logic would require, you were able to leap to the correct conclusion? Many times when you make that leap, it is intuition that aids you in the reasoning process. The reason that trading is seemingly so diffi cult is that, despite insufficient information and market parameters that are changing second by second, you attempt to trade according to a strictly rational-empirical mode of thought. Intuition will help you look in the right direction, and point you in the right direction to begin the reasoning process. Intuition will help you evaluate conclusions that are derived
logically. The quality of the intuitive thought that you possess will be determined by your beliefs about validity of intuition in the trading environment. I cannot tell you how to command or implore intuition to arrive. By examining how you feel about intuition you will discover any negative beliefs that may prevent your sense of intuition from working. Low self-esteem, for example, can lead traders to mistrust anything that they think of, especially if it is a hunch. Fear of change, intolerance of uncertainty, a rigid belief structure, a fanatical adherence to rules, and a belief in standardized procedures will impede intuition. People with a good intuitive sense generally have a high level of self-confidence, courage, and discipline. They are also receptive to unpredictable and surprising news.
Confident thoughts and beliefs, based on faith, and conviction that you deserve the best answer will galvanize your intuition into action. When you believe that you can successfully trade in an unpredictable, changeable, and ambiguous market, you will be giving your sense of intuition a vote of confidence.
Often intuition comes to us while we are sleeping, and if we can remember it while awakening we possess a beautiful gift. The literature has countless stories about how an inventor, politician, general, or writer woke from a nap or a night's sleep with the solution to a vexing problem.
Many intuitive people practice some form of meditation. Meditation produces several very real physiological responses. These naturally include relaxation, a modification of the frequency of the brain waves, and the brain arriving at a higher level of consciousness. Another way to increase your level of intuition is to start practicing yoga. The asanas, or postures, are very effective at decreasing tension and quieting the mind. When the asanas are done correctly, they also increase mental alertness. Perhaps my favorite mental exercise is playing GO, the ancient Japanese game of strategy that is superb at developing many empowering beliefs and strategies. There is no other game that even approaches the mental complexity required by GO.
A very important question for all traders is if the intuitive thought they are experiencing is a real intuitive thought or just an impulsive thought being generated by their unconscious mind on the basis of old beliefs. Often
if the thought originates from our unconscious mind, and our conscious mind experiences no resistance to the thought, then in all probability it is not an intuitive thought. If the intuitive thought is valid, then our conscious mind will often experience a certain amount of resistance to it. Here are a few questions to ask yourself to determine if an intuitive thought is valid:
1. Is the intuitive thought generating an uncomfortable feeling? Generally whenever you have a valid intuitive thought, it will generate a certain amount of discomfort. For example, your intuition tells you to cut your losses on a trade, but you resist and put off doing so because you don't want to own up to having made a mistake, and take a loss before hitting your stop loss point.
2. Are you experiencing any fear of what others will think? If the thought really derives from your intuition, it will generally arouse the attention of other people. Since most people are afraid of ridicule or rejection and have a desire to appear sensible and realistic, they will often ignore an intuitive thought, because it creates a certain amount of fear. As you begin to accept your intuitive thoughts as valid, this fear will usually diminish but not totally disappear.
3. Is your intuitive thought conforming to the generally accepted view? The list of scientists whose intuitive ideas were scorned and deemed impossible by their peers is extremely long. What intuition does best is to go beyond what is generally known and believed. Once again this will generate a certain amount of uncomfortable feeling, or fear.
4. Does your intuitive thought challenge a cherished belief? Many intuitive thoughts can be unsettling. This is because you often have a hard time dealing with the abolition of your old belief and the stabilization of the new belief.
5. Does the intuitive thought not meet all your standards of completeness? Many times a valid intuitive thought will not have all the correlated questions answered. The thought fails to meet all your logical requirements. For example, you wake up one morning with the thought that the coffee trade is in trouble, and that your long position should be removed on the open. Yet because you are unable to satisfy all the correlated questions that will justify the intuitive thought, you remain long, and watch as the market plummets!
6. Does the intuitive thought generate a certain amount of risk? Intuitive thoughts about trading often involve risk. Yet, as in the above example, the risk usually comes from failing to recognize
the validity of the thought. If it is from your ego, generally your ego will fail to see the risk; therefore it is not a valid intuitive thought.
7. Do you want your intuitive thought to be right? Whenever you find yourself wanting to believe your intuitive thought, more often than not your ego is generating the thought. Is it intuition or into wishing?
8. Is it an intuitive thought or an impulsive thought? Many people think that "spontaneity" is intuition, because they have lost the concept of discipline. Some people in the name of spontaneity refuse to discipline their drives, urges, desires, wishes, and whims. What may seem like intuition is actually reactive or impulsive behavior. When the ego is not disciplined and under control, it will frequently generate impulsive thoughts to get you to undertake an action because it desires action.
9. Is it your intuition or a rebellious ego generating the thought? The desire to walk a different path will cause many traders to cling to an impulsive thought generated by the unconscious mind. The more outrageous the thought is, the more it will be embraced. The intuitive thought, instead of generating a certain amount of discomfort for being so
outrageous, will be embraced.
10. Is the intuitive thought accepted without verification? Many times when you experience an erroneous thought, you will be predisposed to accept the thought without even attempting to verify its validity. People who are predisposed to intellectual laziness often fall prey to false intuitive thoughts.
11. Is it an intuitive thought or an emotional thought? Traders who are upset with the market often have a strong intuitive thought that the market is about to reverse. Typically this
intuitive thought originates from the desire of the ego to get even with the market.