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Trading From Your Gut, by Curtis Faith

CHAPTER 1

The Power of the Gut

“The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honors the servant and has forgotten the gift.”
—Albert Einstein

George Soros, one of the greatest traders alive, trades from the gut. He has widely remarked on the correlation between his backaches and trading choices. In the autobiographical Soros on Soros, he wrote:

 I rely a great deal on animal instincts. When I was actively running the fund, I suffered from backache. I used the onset of acute pain as a signal that there was something wrong in my portfolio. The backache didn’t tell me what was wrong—you know, lower back for short positions, left shoulder for currencies—but it did prompt me to look for something amiss when I might not have done so otherwise.

Some traders might scoff at the idea of making decisions based on “feelings” or intuition. They see the trader’s role as one who remains calm and collected, rationally choosing the right course while those around them are tossed about by their emotions. They believe that Soros is either lying or fooling himself. They don’t see how gut instinct can help. Yet many successful traders feel otherwise. Who is right? Is one approach better than the other?

If you are one of those traders who doesn’t believe that gut instinct or intuition has any place in trading, I invite you to keep an open mind. I, too, once felt as you did. After all, I was trained to take a very systematic and logical approach to trading as a Turtle. I believed that it was important to keep your emotions in check. I ­didn’t believe in trading from the gut.

Trading from your gut is a way of tapping into the extra power of the right hemisphere of the brain.

What I didn’t realize at the time, however, is that 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. Trading from your gut is different. It is a way of tapping into the extra power of the right hemisphere of the brain, which can be a powerful, effective, and entirely rational addition to any trader’s repertoire. (more…)