Trading is logical not intuitive

An essential lesson to learn, as a trader, is not to use instinct.

Beginners (traders and investors) rely almost entirely on intuition. We buy stocks based on the image we have of a company, or we take a trade based on a chart pattern; a pattern that has poor context.

In his book, “Think Fast and Slow”, by Nobel Prize-winner Daniel Kahneman, he explains the two systems that drive our way of thinking, system one and system two. System one being fast and intuitive and system two being lazy, slow and logical.

The intuitive trader, the beginner, will interpret trades from patterns that merely feel right –  but they are patterns not based on contextual logic and not based on system two thinking. A profitable trader, however, will look at a trade through system two, a trade based on “good old” slow logic.

To overcome system one we need to force ourselves to employ lazy system two.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s