I hear this question a lot from aspiring traders. It’s one of those questions (like should I quit my job and start Day Trading?) that is completely impossible for me to answer for someone else. Many out there will give you an answer, but they’re clueless about you and your gut. Some will say YES! Trust your gut! Other’s will say, Absolutely NOT! Take ALL emotion out of trading, be like a robot. Ignore your gut and every other emotion.
Since that’s my philosophy on this very important question, I can’t possibly give you an accurate answer! However, that doesn’t mean you should stop reading…
I will tell you how I handle my gut instincts when it comes to Day Trading. I will give you my philosophy and then hopefully you can honestly and accurately answer the question for yourself.
First, let me give you my opinion on gut instincts. I think we humans fall into one of these three categories:
Category 1: No gut instincts at all.
Category 2: Gut instincts are right about ½ the time.
Category 3: Gut instincts are right the majority of time.
I feel it’s important to note, most of those in category 2 and the vast majority in category 3 are probably oozing with common sense. Most in category 3 have a strong bullshit detector as well. I also feel strongly, that just like common sense, you’re either born with gut instincts or you’re not. They can’t be learned. They can’t be taught. You either have them or you don’t. If you don’t have it, it’s not your fault. It’s just how you were made. It’s like wanting blue eyes instead of the brown you were born with. Unlike your eyes, you can’t buy color changing contacts to get what you want.
Now, just because a person falls into one of these three categories, it doesn’t mean they REALIZE which category they are actually in. Many will even lie to themselves about which one they fall into. Intellectual honesty is a bitch for far too many people. But if you want to be successful as a Day Trader, you must be honest with yourself about this and about a thousand other things.
The good news when it comes to Day Trading, is that you don’t have to fall into any one of those 3 categories in order to be successful. Anyone can - cats 1, 2 or 3! HOWEVER, one must figure out HONESTLY where they fall. Then, your Day Trading process needs to reflect that category. At the same time, just because you DO fall into a category that doesn’t guarantee success. It’s just as easy for a trader to fail, albeit for different reasons, regardless of the category they’re in. Everyone assumes that those in 3 have it made but that’s not always the case.
Imo, this is one of THE biggest reason so many people fail at Day Trading. Far too many can’t be honest with themselves in the first place. Other’s just can’t get the process down even after they figure it out.
Let’s look at how this plays out in 2 different ways:
A trader in category 1 fails to recognize that his/her gut just sucks, and they shouldn’t listen to it. They’re just too stubborn. So, rather than taking an absolute mechanical approach to trading in order to become successful, they listen to the gut and they’re wrong all the time. Basically, they’re constantly trading on emotion when that’s the last thing they should be doing. These are usually the same people who make excuses for everything and blame everything and everyone but themselves. These traders need to learn to trade like Holly.
On the other end of the spectrum, is a trader who falls into category 3. This trader doesn’t understand how lucky he/she is and how many people would do anything for those gut instincts. This person still needs a mechanical, technical driven process, but they should also listen to their gut. When they get that gut feeling that something is going to work, they should risk more. The gut should be increasing his/her confidence and conviction in the trade. Instead, they treat it like any other trade and/or hesitate. It’s only AFTER the trade do they realize how spot on it was. Some can never learn to trust themselves even though they should, and that trust would give them an even bigger edge.
So, where do you fall? I have no idea. Like I mentioned earlier, I or anyone else, can't tell you. But it’s crucial you figure this out. The sooner you do, the faster you’ll be on your way. And here’s a hint: if your following all the “traders” on twitter who are constantly marketing, showing you stacks of cash and fancy cars, and you think “THAT’S HOW IT’S DONE!” you’re at the bottom of category 1. Just stop.
Where do I fall?
Right smack in between 2 and 3. When I first started, I assumed incorrectly that I would be in the top 1% of category 3. Why did I assume that? That’s where I was with my previous job and why I was so good at it. Unfortunately, that didn’t all transfer over to Day Trading, at least not right away.
What I quickly learned (and this was AFTER I figured out my process) is that my gut has mood swings, as does the market. There are times when I can trust it 100% and other times I’m full blown category 1. It’s during those down times where I have to consciously NOT listen to it. Shut it down and be ALL mechanical. I NEVER step on the gas during these time frames! I usually have a post it note on my main screen reminding me of this.
It usually takes me several days and/or ONE BIG loss to realize it’s time to switch the gut off. Then it takes missing out on and/or leaving a ton of money on the table on a few trades “I knew” in my gut were going to work for me to switch it back on. Just like adapting to a changing market, I adapt to my changing gut instincts.
One last note: I’ll suggest that those of us who do fall into categories 2 – 3 will find themselves moving more into 3 the longer you do this. Time. Experience. Pain. These will often lead to stronger gut instincts. And course takers, don't forget rule #16. There's a major nuance here. Let me know if you don't see it.
So, are you going to trust your gut or not?
Thanks for reading!
Questions? Comments? Reach out and/or leave a comment below.