While this category of investing is maybe not well recognized, many traders fit the pattern.

To understand what is meant by an intuitive trader it is important to first look at what intuition means.

Intuition in the context of decision-making is defined as a “non-sequential information-processing mode.” Therefore, intuitive decision-making can be described as the process by which information acquired through associated learning and stored in long-term memory is accessed unconsciously to form the basis of a judgment or decision. This information can be transferred through affect induced by exposure to available options, or through unconscious cognition. Intuition is based on the implicit knowledge available to the decision-maker.

In reality, the processes of sensing, feeling, coming from the heart or the gut, and other ways of describing what is going on are external representations of something very real to the intuitive trader.

These processes rely on an interesting combination of knowledge, information, and past market experience. When traders talk about the close link between these so-called subconscious thoughts and bodily feelings, they are generally referring to what is called "trading intuition."

Intuitive traders look at charts a bit, and even more into company fundamentals, but the biggest factor that remains is a general feeling, momentum not only in the individual stock but in the company itself. The trader may look at numbers and find specific opportunities but tends to develop a general feel for many of these companies they wish to invest in.

Intuitive trading gets a really bad rap and very little respect. Traders speak about it in hushed voices, almost like they don't want to be "found out" or accused - of trading with their feelings, rather than with a logical, considered and back-tested analysis.

Neurological research shows us that when people make decisions in situations where they have a great deal of experience, their explicit reasoning is preceded by a brain process that is not conscious to them.

"Buried within each and every one of us there is an instinctive, heart-felt awareness that provides - if we allow it to - the most reliable guide." - Charles, Prince of Wales

There is a lot of truth to this statement. On the other hand, people who claim to rely on intuition may also end up doing things that are not in their best interests or the interests of others.

Becoming an intuitive trader

Intuitive trading is the height of trading as an art form. Only traders with many years of successful trading experience should attempt to subjectively trade the markets. Trade markets using irrational emotion and little or no price action analysis, can leave an inexperienced intuitive trader in a losing position. There must be an objective reason for every market action. If there is none, then a subjective approach is being used to trade the markets.

Beginning traders will lose money over 95% of the time subjectively trading markets because their emotional responses have perceived price action irrationally. It is very, very easy to confuse intuition with into-wishing. A solid price-analysis based trading approach is the best for a beginning trader, which may even include the use of indicators and technical analysis.

Skillful intuitive traders know how to use their intuition to make quick, conclusive decisions. There are times when going with their “gut” instinct can be shrewdly accurate. There are also times when their intuition can be dead wrong and nothing more than wishful thinking. An experienced, profitable trader usually knows the difference.

Experienced intuitive traders frequently report trading in the zone, a time when intuition allows the skilled trader to quickly seize rare market opportunities, act decisively, and make a financial killing. It is important to remember, however, that beginning traders have only rudimentary intuitive skills. These skills are not yet fully developed. It takes time, experience, and practice to develop them.

Intuitions may not reflect facts. Any intuitive thought should be grounded in facts. In other words, if a seasoned intuitive trader were to think backwards after making an intuitive decision, he or she should be able to map out the information and signals that went into making the decision. All intuitive thoughts and hunches should reflect the processing of specific pieces of information. If they’re an inexperienced trader, it’s unlikely that an intuitive decision is based on such information, so rather than act on intuition decisively, it is vital that they stop and think backward.

Although experienced intuitive traders know how to act on their hunches, inexperienced traders are better off if they stay close to the facts. Over time, and with experience and practice in many situations, they’ll be able to trade intuitively, decisively, and profitably.

Next: Price Action Traders »

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