I distinguish two types of intuition – inherent and acquired. Inherent is the one you were born with and it is the end product of hundreds of thousands of years of evolution aka trying to survive in the fields. We are wired to seek instant gratification without a deeper thought about the future consequences, we are loss averse and stubborn.
While the inherent (core) intuition is the pre-installed software, each and everyone of us is born with, the acquired intuition is the upgrade we get through life as it is based on everything we experienced. Your brain remembers everything, even if you don’t realize it. Of course you can easily recall only the most vivid memories as depending on your everyday activity the brain has prioritized what is important and what is not.
When it comes to trading or investing, there is a reason you like some patterns more than others. The question is, should you trust your intuition? The contrarian school of thought in the market teaches that you should try to fade your intuition as it usually points you in the wrong direction. This is not always the case. If you have enough experience, your intuition is your biggest edge as it recognizes combinations of patterns and factors invisible for the normal eye.
Which has stronger influence on your decision making – your hereditary intuition or your acquired intuition? For fields you don’t have enough experience with, you hereditary intuition is likely to prevail and in the many cases it will urge you to take not the most efficient step.
All of us are naturally wired to think in terms of mean reversion. This is how the nature works – everything is balanced, everything is cyclical. We tend to project the linear relationships from the physical world unto the non-linear financial world. I have had my fair share of wrong moves in the capital markets and over time I realized that mean reversion does not work for me. My experiences conditioned me to see danger or more precisely – better alternatives, where other people see opportunity. Don’t get me wrong. I am not saying that mean reversion way of thinking is wrong. There is an exorbitant number of living examples of people that have figured out how to be immensely profitable using it. I have accepted that it is not for me and decided to specilize in trend following. You just have to find what works for you. Most people find that the hard way.