Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis

INTUITION VERSUS THE PSYCHIC TRADER SYNDROME

Many well-respected books on trading techniques advocate the use of intuition as an adjunct to various techniques, such as fundamental and/or technical analysis. Chapter 3 specifically identified one of the potential psychological pitfalls of trend trading as an unwillingness to relinquish a portion of unrealized gains and stated that this weakness was linked with an unrealistic belief in our psychic ability to predict future market behavior. Obviously these two concepts—intuition and the psychic trader syndrome—are contradictory in nature. This is why I have purposely avoided the issue of intuition in trading decisions until I had laid the foundation of the multidimensional nature of markets and trader psychology.

Now I can provide readers with a complete exposition of my beliefs in this regard. Yes, I do feel that intuition has a place in the world of successful trading and freely acknowledge that certain traders successfully utilize this tool to enhance trading performance. Unfortunately, I also feel that a much larger number of traders use this belief in the power of intuition as an excuse to abandon their discipline in the markets.

I cannot resolve this conflict between true intuition and the delusional psychological pitfall that I describe as the psychic trader syndrome. Instead, I simply acknowledge the virtually infinite manifestations of successful trading in the markets and admit that in order for me personally to succeed as ...