Intuition in trading.
- Thread starter Laissez Faire
- Start date
Listen to what Handle123 is saying, this person knows what they're talking about.
Now, about intuition in trading, I can provide a very characteristic example. Let's call it the "Magnus Karlsson effect". Imagine someone you don't know, and I tell you some information about them, their name is Magnus Karlsson. Now, using only your intuition, in the sense you described in your post, answer four questions.
First question, what is the likelihood that this person is male? Second question, what is the likelihood that this person has Scandinavian heritage? Third question, what is the likelihood that this person is Norwegian? And fourth question, what is the likelihood that this person is very intelligent and a good analyst?
Now, honestly ask yourself, how did you answer the fourth question? I can assume that you answered it with a 'high probability' if you relied on your intuition. And here is the trap. Because if we objectively consider all people named Magnus Karlsson, and gather them into one sample, there will indeed be nearly 100% or exactly 100% males, and the overwhelming majority will be Scandinavians, with the highest number being Norwegians. The distribution of intelligence between smart and not-so-smart will be roughly the same as for Norwegian men as a whole, across the entire dataset.
But when you were answering the question, you had the famous chess champion Magnus Karlsson in your mind, which influenced your answer and led to an error. The same situation applies to trading. When people use intuition, they often rely on their memory. They think, "Ah, I've seen this before, I've seen it many times, I've seen it in these specific situations". However, the catch is that a person, especially in day trading where decisions need to be made quickly, may not necessarily combine all previous cases into a homogeneous sample. In reality, this sample will be heterogeneous and will represent different situations. But the person will constantly recall only those cases that align with their mood, their bias, and will remember selectively the cases where the market was rising, while disregarding the cases where it was falling. This way, they combine diverse events, diverse situations into a singular entity, and at a given moment, it may seem to them that the situation is homogeneous, that the probability of growth significantly exceeds the probability of decline. However, in reality, it may not be the case, just as a person named Magnus Karlsson can be a complete fool.
Now, about intuition in trading, I can provide a very characteristic example. Let's call it the "Magnus Karlsson effect". Imagine someone you don't know, and I tell you some information about them, their name is Magnus Karlsson. Now, using only your intuition, in the sense you described in your post, answer four questions.
First question, what is the likelihood that this person is male? Second question, what is the likelihood that this person has Scandinavian heritage? Third question, what is the likelihood that this person is Norwegian? And fourth question, what is the likelihood that this person is very intelligent and a good analyst?
Now, honestly ask yourself, how did you answer the fourth question? I can assume that you answered it with a 'high probability' if you relied on your intuition. And here is the trap. Because if we objectively consider all people named Magnus Karlsson, and gather them into one sample, there will indeed be nearly 100% or exactly 100% males, and the overwhelming majority will be Scandinavians, with the highest number being Norwegians. The distribution of intelligence between smart and not-so-smart will be roughly the same as for Norwegian men as a whole, across the entire dataset.
But when you were answering the question, you had the famous chess champion Magnus Karlsson in your mind, which influenced your answer and led to an error. The same situation applies to trading. When people use intuition, they often rely on their memory. They think, "Ah, I've seen this before, I've seen it many times, I've seen it in these specific situations". However, the catch is that a person, especially in day trading where decisions need to be made quickly, may not necessarily combine all previous cases into a homogeneous sample. In reality, this sample will be heterogeneous and will represent different situations. But the person will constantly recall only those cases that align with their mood, their bias, and will remember selectively the cases where the market was rising, while disregarding the cases where it was falling. This way, they combine diverse events, diverse situations into a singular entity, and at a given moment, it may seem to them that the situation is homogeneous, that the probability of growth significantly exceeds the probability of decline. However, in reality, it may not be the case, just as a person named Magnus Karlsson can be a complete fool.
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My intuition would have simply given you the correct answers for the first 3 questions and no answer to the 4th. I recognize that of the first 3 answers I could have been wrong on anyone or all of them but probabilities are I was right.
I trade PA solely on guts. Because there is bear traps and bull traps, you could be as good in TA as you want - if your buy signal gets sold like hot potatoes: you lose. I use intuition to predict failures of buy and sell signals and if I get confirmation I am right there baby, squeezing the losers. Doesen't work well in trading ranges and reliable trends, so I use a more systematic approach for that. The fact, that I switched from swing trading to daytrading in the COVID times using nothing but daily and weekly OHLC and IDR as my indicators says it all, gut feeling wins. Only my stop loss size is systematic 'thou. If you have the feeling on when something's wrong you can be the best indicator there is. But as one mentioned, you have to be always on the hunt, markets change behavior frequently.
Every method every statistic under the sun has been backtested into oblivion by large firms. If you want to go that route, will be competing over scraps.
Basically everything is an indicator.
But... if your startegy generates 2-3 trades per day AND average trade (not average profit!) is 4 ticks so average daily take is about 10 ticks - such strategy is not interesting for big boys. Any volume above average on DOM will cause slippage so profit will be turned into zero or loss. And here is the window of opportunity for small daytrader. Do not compete with big boys, be below the radards. Be humble, do not set the goal to take 30 or 50% of daily ATR. This is my way in trading and I do not use and do not need intuition...
God, finally. Someone that articulates retail edge perfectly.
Yet in the decision making process everybody under the sun keeps an eye on the regular chart, which negates a closed loop system.