Forex: Intuition, instinct and intelligence for traders
First, let’s try to answer the question, what is intuition. In philosophy, there is the following explanation of the concept of intuition. Intuition is a person’s ability to penetrate into the essence of things not by reasoning or logical thinking, but by instantaneous unconscious illumination. If we accept this explanation of intuition for an axiom, then with respect to the topic of this book, one can say that intuition is nothing more than the trader’s ability to work and “see the market not with the mind, but with the heart.”
And now let’s assume that the trader’s perception of the market is a synthesis of the activity of the three basic qualities of his body, mind and soul, the three “I” – Instinct, Intelligence and Intuition.
How do these qualities manifest themselves?
Instinct in the trader manifests itself on the material level. When a person wants to eat, he produces food. At the same time, if the process of obtaining food is hampered by the presence of a predator or other strong opposition, then a person either unites with people interested in the same food (forming an organized crowd) or looks for another, more realistic opportunity to satisfy the need for food. At the trader all it looks as follows. Moves them a desire to earn their daily bread (and even to have enough for caviar), for which it is necessary to conclude deals – to buy and sell.
Any initial action of the trader is considered just as his desire to satisfy a variety of material interests. If, after doing some action, the trader has suffered losses, it is almost the same as when in the process of obtaining food he came across an insurmountable obstacle and lost either the left eye or the right leg. Any normal person will step back and try to not go into this place more than one. So will our average trader. At the moment, his stop-loss will work.
If the trader has earned, moreover, and it is easy enough, this fact is equated to the discovery of good forest lands, in which there are many wild game. Naturally, the next time the trader will come to the place, which he already “knows well”. So it seems a kind of prototype of the trend behavior of the market, when a strong unidirectional price dynamics reinforces itself, as long as there are forces (growing like wildfire).
Thus, it can be noted that the action of the instinct is manifested in the emergence of the unconscious desire of the trader to conclude deals. At the same time, if possible avoiding the “bad places” and often looking into the “good land.”
The trader’s intellect is manifested in his ability to logically comprehend what is happening with him and with the surrounding reality and take on this basis the simplest and most profitable solution. If the instinct is acting unconsciously, using generic memory (these are teachers’ advice and a set of simple rules, which in this book is sufficient), the intellect tries to independently comprehend these councils and rules in accordance with the shared world outlook and changed external conditions. It is the intellect that is designed to help you find a way out of a possible impasse, into which you can be driven by simple following the old rules. Intellect can also give its own image of financial markets and, thus, it is much more successful to survive in it.
Intuition. They say that intuition can appear only with experience. Is it so? However, after all, experience is only the result of the accumulation of knowledge and intellect, sufficiently developed in this direction. Experience, of course, helps, but it is not enough to explain where the intuition comes from. There is such a belief, as a rule, confirmed that newcomers are lucky, but in fact newcomers do not have experience at all. For today there are programs on the analysis of the markets, representing a set of simple rules (programs on the technical analysis) and self-learning programs (using neural network solutions). These kinds of programs are computer processing of all experience of previous generations of traders. At its core, any program is only a reflection of two qualities of a person – his instinct and intellect. For today, there are no programs predicting the behavior of the market using an intuitive method. If we can not logically explain what intuition is (and this is the reason for the failure to create such programs), then can we apply it. I am given an affirmative answer.
Let’s again draw an analogy between the everyday actions of a person and the actions of a trader in the market. Suppose that before us is the dacha to determine whether it will rain today and take us with them on the road umbrella or not. Our instinct tells us that since it was raining yesterday, and we did not have an umbrella with us and we got wet, it’s better to take an umbrella. Regardless of whether it will rain today or not. The intellect will listen to the weather forecast and look at the sky – whether there are rain clouds or not. You can also calculate the probability of whether it will rain just while we are in the open. The result is the conclusion – take an umbrella with you or not. Agree, this task will cope with any, not even the most powerful personal computer. Here the probability of positive results will depend entirely on which decision rules we specify and how precise we will be in determining the concept of the result. But the decision of the computer will never be 100% successful. Even now, chess programs can not always win individual people. Do these people calculate the variants of the development of events better than the machine? May be. But the difference, most likely, in the presence of intuition in living chess players. Let’s return to our example with an umbrella. You can not look at the street and do not listen to the weather forecast, but if you have developed intuition, you will determine much better – to take an umbrella with you today or not. In any person there are the beginnings of intuition, but not everyone applies it. Namely in the application it develops, and it’s not about the experience. By deliberately using their abilities of sensory perception of reality, a trader can develop his intuition, which will not be worse, and maybe much better than any of the best rules and the best program to prompt the right decisions.
How to check – do you have intuition or not. You can try to imagine what will happen to him in the future and fix it on paper by looking only at the subject of the research (for example, the price chart). Naturally, about any application of this in practice at first, until you are convinced of your ability to intuitively perceive the market, there can be no question. It is desirable to conduct these experiments regularly, in any mood and mood. Only having a positive result, close to 80%, you can say that your intuition has worked. In all other cases, it is not sufficient for practical use. But, of course, even having a highly developed intuition can not act on the market, using only it. It’s the same as walking on the edge of the cliff with blindfolded eyes. This is at least very tiring and, as a maximum, you can lose everything.
In conclusion, I will give an example of George Soros – one of the most fortunate financiers of our time. His approach in applying intuition is as follows. He puts forward a hypothesis and verifies it with his real actions on the market (naturally, without risking large sums). If the hypothesis is confirmed, then it can be used as a working one. Otherwise, it is necessary to check why the reality has disagreed with the hypothesis. It is possible that this is only a temporary deviation and the hypothesis as a whole is correct. Only after testing the hypothesis can large-scale operations in this direction begin.