Praise for Trading from Your Gut

The Dangers of the Gut
Although gut instinct and intuition can be powerful tools for suc-
cess in the hands of an expert, they can prove dangerous for the less
experienced trader. One reason is that these individuals often
approach trading with certain prejudices and tendencies that are
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counterproductive or just plain wrong, such as placing too much
weight on the news. This practice creates certain assumptions about
the future price direction for a given stock based solely on one’s gut
reaction to the news. The problem with this sort of intuitive judg-
ment is that the very premise on which it is based is flawed: The news
is not the source of market movement. It does not shape markets,
and thinking so takes an overly simplistic view of a very complex
landscape.
A trader who starts with the flawed premise that one can predict
market price movement with an analysis of the news is going to have
problems. A flawed premise combined with intuition still leads to a
flawed outcome. The outcome is only as good as the foundation
upon which it is built.
Inexperienced traders commonly latch on to a particular trading
guru’s methods. These new traders often follow the guru’s explana-
tion for how to trade without bothering to build an internal rationale
or model for why those methods will work. They follow the letter of
the law without attempting to understand the spirit of the law. They
attempt to learn the “what” but not the “why” for trading based on a
particular method. The problem with this approach is that it is
static: It can’t adapt to changing markets. It also leaves no room for
the gut.
The best approach is to use each part of our brain for what it is
best suited to. The left brain is good at building and understanding
models for how the world of trading works, and the right brain is
good at generating ideas and recognizing opportunities. 
For the right brain’s intuition to work to one’s advantage, it must
be primed with a full set of scenarios from the left brain that
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provides the proper context. If the context is flawed, the resulting
intuition will be imperfect as well.
The left brain is good at building and understanding
models for how the world of trading works,
and the right brain is good at generating ideas
and recognizing opportunities.
This explains why master traders use their whole mind for trad-
ing. They prime their right brains with patterns that their left brains
understand and categorize using carefully reasoned analysis. Analy-
sis supports the intuitive process and ensures unbiased thinking by
giving traders enough mental models for them to make sound judg-
ments. Analytical thinking also performs an evaluation and ranking
function that is critical for “training” intuition.