Curtis Faith is one of the most famous traders and a participant of the famous “Turtle Trader” experiment. His book “Trading from Your Gut” shows why intuition is such an effective trading tool that allows to process thousands of inputs almost instantly. Curtis Faith says you can learn to use intuition in order to perform better trading, develop your talents and sharpen skills.
Trading from your gut is a way of tapping into the extra power of the right hemisphere of the brain. There is a big difference between trading emotionally and trading from your gut. Trading emotionally means reacting to fear and hope, which can destroy your trading decisions. The most effective training is trading itself. The experiences you encounter while trading train your intuition. Although gut instinct and intuition can be powerful tools for success in the hands of an expert, they can prove dangerous for the less experienced trader.
If you want to trade with both your intuition and your intellect, you need to pick trading strategies that work for your whole mind. Master traders learn to develop criteria to determine exactly when the odds tip in the trader’s favor, including these:
- Market environment — does the stock market need to be trending up, sideways, or down? Should it be volatile or quiet?
- Setup — conditions that indicate a trade is ready to be taken. These are often combinations of several short- and mediumterm factors.
- Triggering event — specific event that indicates a trade should be taken.
- Exit event — specific event that indicates a trade should be exited.
Curtis Faith Questions
The goal when analyzing the market state is to be able to answer these two questions: What, if anything, would the market have to do for it to be a good time to initiate a buy? And what, if anything, would the market have to do for it to be a good time to initiate a sell? If the market can’t do anything on a given day to indicate that it is a good time to buy or sell, you should just wait for another day to do your trading.
Start small if you must, but put your intuition to work with actual trades, and you will find that it complements your intellect.
Analysis, linear thinking, ordering, and the need to find structure dominate left-brain thinking.
We try to make sense of the world with our left brains and bring order to it. We categorize, theorize, rank, and file with our left brains. When you think out loud, you are using your left brain. Put another way, when you think consciously, you are using your left brain.
The right brain, in contrast, is concerned with the whole picture and the spatial relationships between each of its parts. The right brain is quick and intuits instead of reasons. If you’ve ever felt uncomfortable or unsafe but couldn’t pin down the reason, this was your right brain’s sense of intuition generating that feeling. The right brain moves much more quickly than its counterpart. In trading, avoiding risk will prevent you from becoming a good trader, let alone a master. Traders trade in risk.
One of the commandments of the master trader is that if you want to make money trading, you can’t act similar to most other traders, but you need to know what they are doing. Master traders are always ready to change their opinions and perspectives. They consistently look for the reasons why they are wrong instead of trying to prove themselves right. Master traders don’t suffer from mental inertia.
Mental inertia comes from the prime lesson that new learning is retained for later use. When you form an opinion, it takes some specific impetus to change that opinion. The stronger your opinion, the stronger the impetus required to change that opinion. So when you have an idea that the market is not good for buying, it takes considerable motivation to change that idea. When a trader decides to place a trade, it often takes considerable drive to change course and exit the trade.
Whenever the market does not act right or in the way it should — that is reason enough for you to change your opinion and change it immediately.
One of the mental shortcuts that our brains are programmed to make is the belief that doing what others are doing is safer than doing something different. Human beings are social animals. We take cues from others in our social circle. This tendency is a mental shortcut that saves us valuable effort. It is known as the bandwagon effect in finance and causes major problems for traders who are not aware of how it impacts the market. Too many people jumping into a market almost always results in bubbles and busts.
In physics, this type of movement is associated with a damped harmonic oscillator, a series of progressively smaller waves that oscillate about a center line. A plucked guitar or piano string behaves similar to a damped harmonic oscillator; the vibrations are larger at first, and then the oscillations die down over time.
Markets often act similar to damped harmonic oscillators. As with the weighted end of a fishing pole, they often overshoot when they move and then bounce around slowly to find a new equilibrium after a large price displacement.
Classes of Stocks by Curtis Faith
- Tradable stocks — stocks that are liquid and priced at a level that is appropriate for your account balance.
- Stocks to watch — stocks that are tradable and that represent potential trades if they move in the right direction.
- Potential trades — stocks that are close enough that you will place orders if the overall market conditions match.
Learning from the example provided by the Roman legions, here are some specific actions you can take to reduce the pressure on individual decisions and increase tactical flexibility:
- Don’t overcommit — so you don’t suffer as much if a decision is wrong.
- Remain flexible — and adapt your tactics as events unfold.
- Experiment — to test several ideas to get more information.
- Have a plan B — to know what to do if an initial decision is wrong.
People have three kinds of memory. Sensory memory lasts from milliseconds to seconds and holds information from the senses that the perception system then processes. The perception system uses working memory, lasting from seconds to minutes, and sorts and filters information that cognitive systems need to process. Your cognitive systems are consciousness and attention. These systems process the information from our perception system, discarding anything unimportant and retaining key information or anything that it believes might be useful later in reference memory, which lasts for hours, days, or years. Much of the time, your visual perception system is processing and then discarding most of what you see. Your working memory holds on to images that are noteworthy — things you find especially interesting or novel.
The reason balance is important for both tango and Tae Kwon Do is the same. If you are balanced, you have options. You have the flexibility to move in any direction at any time. If you are off balance, you have fewer options or perhaps only one.
- Your left brain is analytical and rational.
- Your right brain is intuitive.
- Use both to succeed in trading and to earn more!
You cannot become a superb trader based purely upon mechanical trading methods. Intuition is an integral component of the success for the best traders in the world.
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