Experienced traders will often talk about their gut feelings when it comes to trading. This is a difficult topic because most of what you hear will talk strongly against following your emotions when trading and sticking to your trading strategy instead. On the other hand, most experienced traders know the feeling of having a strong hunch that you chose not to follow and then watching the price move the way you predicted. Gut feelings while trading can be important. So, how can you reconcile one with the other? How can you not trade by emotion, but also trust your gut?
One Chart, Two Perspectives
We all know that two traders can look at the same chart and come to different conclusions. Even in the same market, with the same level of experience, two traders can behave differently. This is because there are always factors behind the scene. There are always other perspectives to consider. Keeping this in mind, will help us understand how intuition and gut feelings can come into play. Sometimes, our subconscious tells us to consider a different perspective.
Practice and Experience
While there are never any blanket rules, as a new trader, you should never follow your gut. Intuition, gut feelings, and hunches are something you can rely on once you have experience. Intuition is something that is developed over time. If you’ve spent enough time practicing, you’ll develop a feel for how the markets behave in specific situations, which will give you a hunch about how the price will move at a later time.
Relying Solely on Your Gut Feel
This is a no-no. While experienced traders should listen to their gut feelings and take their hunches into account, this must not be all you take into account. You still need to analyze the charts and consider the trade from all perspectives. In most cases, you’ll simply following your strategy. After all, this is the strategy that you spent time developing and mastering. It is only in certain situations that you might want to follow your gut over your strategy.
Feeling Confident Following Your Gut
Having the confidence to follow your gut will also come with time and practice. The first few times you have a strong hunch, you may choose to ignore your gut feelings in favor of your tried and tested strategy. With even more time and experience, keeping track of your trading outcomes, you’ll be able to see where your gut feelings proved correct and where they didn’t. Once you feel your can trust your gut, you will have the confidence to try them out. Start by taking a small position when you’re relying on your gut. With proper risk management practices in place, you’ll be able to build your confidence slowly.
Our subconscious mind is a powerful tool that sometimes seems to have a better understanding of situations than our conscious mind. Once you’ve mastered your strategy and gained experience, it is worthwhile to take this intuition into consideration when trading.