Praise for Trading from Your Gut

Balancing Intuition
Your intuition is not infallible. It will make mistakes. It will send
you on wild goose chases. It will find some patterns that appear to
be very promising but that, on further investigation, don’t turn out
to be the gold mines they first seemed. You need your left brain’s
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analytical nature to help direct your intuition in these cases, to cor-
rect it and steer it away from rocky shores. Analysis and intuition
should work hand in hand, in balance.
The question remains, how should you create and maintain this
balance? You can talk about balance, but you need to be able to put
this concept into actual practice for it to do any good. An example
from other fields might help illustrate the process.
Starting about 1985, research psychologist Gary Klein and a few
colleagues were studying the way people such as firefighters, nurses,
and military personnel actually made decisions. Their results were
surprising. Before their research, Klein and his colleagues believed
that the best way to make decisions involved a rational analysis in
which the decision maker carefully weighed alternatives. Surpris-
ingly, Klein and his fellow researchers found that expert firefighters,
nurses, and military leaders did not make decisions by logically
weighing alternatives. Instead, the vast majority used their intuition.
Instead of comparing among alternatives, they acted intuitively and
pattern-matched. Most of them said that they didn’t even have to
think about the right answers; they just knew what to do. They drew
upon their experience with similar circumstances in the past and
developed a primary plan of action almost immediately. 
One aspect of his research particularly surprised Klein. He orig-
inally had thought that novices would impulsively choose the first
plausible plan and that they would be less likely to evaluate among
alternatives. He had expected that experts would evaluate several
scenarios and base their decisions on an evaluation among these
choices. He believed that because experts had more experience,
they would be able to evaluate a greater array of potential scenarios. 
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Instead, he found the opposite. Experts almost immediately
were primed toward one particular course of action. They then
checked this course for viability, and if they found it viable, they
acted on it. The experts intuited the right answer without having to
think about it. Their right brain quickly built the answer in a bot-
tom-up manner to arrive at a viable solution to the problem.
In contrast, the novices spent much more time in the decision-
making process because they were carefully evaluating among com-
peting alternatives. They did not have enough examples of similar
prior events in their experience to enable them to quickly determine
which alternative was clearly superior. The novices spent all their
time using their intellect.
Experts used their intuition to arrive at an initial plan,
and then they evaluated that plan for viability
using their left brain’s analysis.
It’s important to notice that the experts used their intuition to
arrive at an initial plan, and then they evaluated that plan for viabil-
ity using their left brain’s analysis, asking questions such as, Am I
missing something? Do I have time for this approach? Is a safer
alternative available? Will this approach work?
Intellect and intuition working hand in hand, each working at
what it does best: This is the middle way of trading.
Klein’s experts used their intuition to guide the direction of their
intellect so that they did not waste time thinking about alternatives
that were clearly inferior. In trading, intuition can also guide the
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process of strategy development. Then intellect can make sure that
the strategies will work. And when you start trading, your intuition
can take over again to recognize the patterns that make up the com-
ponents of the trading strategy.
The proper interplay between intuition and intellect is the sign
of a master trader.