Developing intuition in trading - is that so important?
There is a lot of debate about intuition in trading. Most agree that intuition is nothing more than an instant interpretation of previous experience at the subconscious level.
However, there are studies that show that the ability to predict further price movement depends on the skills of "social analysis," i.e. analysis of other people 's behavior.
In 2010, The Journal of Finance published a stunning study conducted by researchers at California University of Technology, Brawlier, Quartz and Bossaerts. By conducting experiments on the brain and human behavior, they have demonstrated that it is social cognition rather than mathematical and logical reasoning that underpins the less understandable X-factor in traders. Those legendary portfolio managers and traders who give the impression of people with a special talent for predicting markets are unconscious in relying on cognitive empathy or, in other words, mentality. This style of social thinking seems to be the force behind this exceptional pattern recognition ability that allows great traders to derive values from signals transmitted through price movement dance.
The results of this complex experiment were as follows:
1. 46-78% of the participants of the study quite successfully predicted the direction of price change.
2. Correct predictions correlate with the results of two social cognition tests, of which the classic Heider-Zimmel test discussed below and used as a basis for exercise for within The Bloomberg Tradebook Trader Exercise tool was the most convincing.
3. The results of the mathematics tests showed no correlation with the ability to predict the price.
Expertise, unconscious pattern recognition, and trade intuition
It is also relatively fashionable to devalue the value of unconscious pattern recognition or felt consciousness. Research in behavioral finance has convinced us to question the type of expertise we usually call intuition. However, leading scholars in judgment and decision-making say the opposite: "Intuitive thinking is at the heart of the most advanced thinking" (Reina, 2012).
Research points to evidence that more erudite thinkers rely on the essence or essence of the situation to make a choice (essence is a deep understanding of something) rather than a literal and literal recount of factors. They select the essence of the issues at hand rather than listing or prioritizing each possible outcome. In fact, this is what exercise aims at, the main question of where price can move, as opposed to a more detailed analysis of all the factors that can influence price movement. A professional trader who listens and analyzes his internal voice is effectively given the opportunity to track price movement for years.
Thus, it can be assumed with sufficient certainty that participation in the program "Bloomberg Tradebook Trader Exercise" will allow to involve the most useful "muscles" of neurons. Conscious work based on the real skills underlying performance - social cognition - should, as a result, warm up the trader 's brain in a way that makes it easier and more effective in predicting the likely development of price movement. We hope you enjoy this exercise, and believe that its practical application will benefit your trade.