‘Gut feelings’ help make successful traders

13/11/2016 | By | Reply More

While browsing various papers I recently came across an academic report publish in Nature, entitled the unfriendly – ‘Interoceptive Ability Predicts Survival on a London Trading Floor’.

Basically speaking, researchers show that ‘gut feeling’ does indeed contribute to successful trades. You can read the full report here: –

http://www.nature.com/articles/srep3298

If you don’t want to wade through this, here are the key elements: –

First off, Physiologists often use the term ‘gut feeling’ as a colloquial synonym for any interoceptive sensation that guides behaviour.

Researchers recruited 18 male traders engaged in high-frequency trading. What that means is that they bought and sold futures contracts but held their trading positions for only a short period of time, seconds or minutes, a few hours at the most. This form of trading requires an ability to assimilate large amounts of information flowing through news feeds, to rapidly recognize price patterns, and to make large and risky decisions with split-second timing.

The study took place during a particularly volatile period — the Eurozone crisis — so the performance of each trader reflected his ability to make money during periods of extreme uncertainty.

An individual’s interoceptive ability could be used to predict whether they would survive in the financial markets. The researchers plotted heartbeat detection scores against years of experience in the financial markets and found that a trader’s heartbeat counting score predicted the number of years he had survived as a trader.

“Traders in the financial world often speak of the importance of gut feelings for choosing profitable trades — they select from a range of possible trades the one that just ‘feels right’,” says Dr John Coates, a former research fellow in neuroscience and finance at the University of Cambridge, who also used to run a trading desk on Wall Street. “Our findings suggest they’re right — they manage to read real and valuable physiological trading signals, even if they are unaware they are doing so.”

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Category: Trading strategies

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