Do we trade on instinct or logic?

[Jai Ramoutar]

This Saturday I had a 3-hour conversation with a friend of mine who began trading 18 months ago. His question to me was, do we trade on instinct or logic? I've been asked this before, and this is my feeling. Instinct is a by-product of education, experience, maturity and discipline. Instinct in its initial form, or left unimproved is "gut". One of the keys is honing in on the instinct and repeating it over and over.

Logic is developed by education, strategy and respect for what the senses have reported back to the brain.

I find that I trade on both, I am in and out of the trade before I realize instinct and logic were ever present, I don't even realize they were there. Amazing how the brain just takes over, and it doesen't have the time to tell the heart what's going on.

If you have a cat, start observing it over the next few days, you'll see what I'm talking about.

The domestic cat has many of the gene's of a tiger and lion. Newborn wild animals raised in a domesticated environment are far less dangerous. Domestication cannot change the instinct, but it alters the logic which regulates the instinct.

We as traders need to alter both since we need both to trade. I wonder what your thoughts are?

[linus71]

Jai,

these are really good thoughts.
It's like: emotion versus reason.
Also I trade with instinct many times. But I found my trades based on cold logic were far better - always.
Switching from instinct-trading to logical-trading is as easy as quitting chain smoking.

Today was just a day were I could offset a bad trade with good ones.
Then it came in mind: trading is a task, a job, a profession.
It's a profession like a doctor, a printer, an engineer.
You learn these professions for about several years until you can perform them properly.
In professions like these it is often a big fallacy to act on instinct when everything goes "normally". In cases of emergency when the doctor must provide first aid, he'll do some movements instinctively. But then, when it's about to cut and sew he has to focus on his task. And then it's nothing but logic.

No matter what job, when you focus on your task, you apply what you have learned with the intention to make "good work".
And that's what trading's about. To make good trades.
Too many traders just focus on the money they could make - that's emotional behavior. In my case it rarely worked out.
Can you imagine a doctor or a cook always thinkin of money while doing their jobs? - Not good.
When I focused on making good trades I found that money will come automatically. I think this is the only way to trade properly.
Before I enter a trade I ask myself "Is it good?".
With a voice of reason. In this single question other questions are implied like: How's the risk/reward? What are the indicators showing?

It's like in any other profession; if you perform badly you get fired.
(Here in the markets you get drowned, not fired.)
And if your job is good, you'll get a raise, a promotion. Your business will be successful.

I really think this is important: Focus on your task. Apply what you have learned. Make good work. Make good trades.

Linus

[Jai Ramoutar]

Originally posted by linus71
Jai,

these are really good thoughts.
It's like: emotion versus reason.
Also I trade with instinct many times. But I found my trades based on cold logic were far better - always.
Switching from instinct-trading to logical-trading is as easy as quitting chain smoking.

Today was just a day were I could offset a bad trade with good ones.
Then it came in mind: trading is a task, a job, a profession.
It's a profession like a doctor, a printer, an engineer.
You learn these professions for about several years until you can perform them properly.
In professions like these it is often a big fallacy to act on instinct when everything goes "normally". In cases of emergency when the doctor must provide first aid, he'll do some movements instinctively. But then, when it's about to cut and sew he has to focus on his task. And then it's nothing but logic.

No matter what job, when you focus on your task, you apply what you have learned with the intention to make "good work".
And that's what trading's about. To make good trades.
Too many traders just focus on the money they could make - that's emotional behavior. In my case it rarely worked out.
Can you imagine a doctor or a cook always thinkin of money while doing their jobs? - Not good.
When I focused on making good trades I found that money will come automatically. I think this is the only way to trade properly.
Before I enter a trade I ask myself "Is it good?".
With a voice of reason. In this single question other questions are implied like: How's the risk/reward? What are the indicators showing?

It's like in any other profession; if you perform badly you get fired.
(Here in the markets you get drowned, not fired.)
And if your job is good, you'll get a raise, a promotion. Your business will be successful.

I really think this is important: Focus on your task. Apply what you have learned. Make good work. Make good trades.

Linus

Excellent, Linus. What a great post. The line that really got me was:

"Too many traders just focus on the money they could make - that's emotional behavior. "

The by-product of a properly executed trade is either a smaller loss or a larger gain. If the risk reward ratio is sound, the net result is profitability. I absorbed a lot from your post, thank you!

[Jai Ramoutar]

Yes indeed.

A very good article. Thanks, Linus!