Unlocking the Power of Intuition and Emotions in Trading
Harnessing Instinct and Emotion to Make Smarter, Faster Trading Decisions
Renowned behavioural psychologist Gary Klein recounts the harrowing story of a firefighter commander who, in a split second, made a decision that saved his crew’s lives during what seemed to be an ordinary building fire.
Klein describes how the commander was suddenly struck by an instinctual alarm—an unshakeable feeling that something was deeply wrong. With seconds slipping away, there was no time to analyse or rationalise; he had to trust his gut. That instinctive, split-second reaction — driven by years of experience — was the difference between disaster and salvation, ultimately saving the lives of his entire crew.
Later investigations revealed that the building’s structure harbored subtle, unpredictable differences—hidden details that firefighters could never have consciously discerned in the heat of the moment. On the surface, the fire and the building appeared typical, the kind the fire crew was accustomed to combatting. Yet, faint clues suggested something might be different. Only a highly experienced firefighter, operating on instinct and with great difficulty, could have possibly recognized these signs—only at that critical, intuitive moment.
Fortunately, the commander possessed an instinctive understanding of this anomaly—refined by years of experience. His unspoken, instinct-driven response, guided by that keen insight alone, prompted a precise action at exactly the right time. It was this deep, intuitive knowing—an almost subconscious sense—that ultimately saved lives amid the chaos.
Klein, who sought to study and model instinctive decision-making, was eager to understand what drove that seemingly miraculous choice, which the commander had described as ‘divine inspiration’.
The Science Behind Intuition
This kind of intuitive insight isn’t exclusive to firefighting. It applies widely across all fields, and is especially prevalent in trading.
A fascinating experiment conducted in 1994 by behavioural scientists at the University of Iowa, including notable psychologists Antonio Damasio and Antoine Bechara, sheds light on this phenomenon.
The researchers devised a card game designed to simulate real-life decision-making under conditions of uncertainty.
Participants drew cards from four decks, earning or losing money with each choice. The game was rigged so that some decks, due to their structure, offered better odds than others. During play, participants’ skin conductance responses—similar to lie detector readings—measured their stress levels and subconscious reactions.
During this experiment, the researchers discovered something fascinating, which revealed profound insights into how people make decisions in situations of uncertainty.
They found that most players started to instinctively sense which decks were "better" after about 50 cards. However, it was only after turning over roughly 80 cards that they could confidently articulate the pattern. Strikingly, their bodies told a different story—physiological signals revealed they had picked up on the pattern much earlier, sometimes after just 10 cards. This subtle disconnect between conscious awareness and subconscious sensing highlights just how powerful and instinctive our intuition truly is.
We often sense (feel) that something is wrong/not right long before we are consciously aware of what it is, and even well before we can rationally or logically explain it. We don’t need to fully comprehend or process something logically to have an intuitive understanding of it. Our bodies detect signals and subtle cues long before we become consciously aware of them.
Trusting the “Feeling”
As traders gain experience, they develop a deep understanding of market behaviours across cycles and in reaction to news, enabling them to sense when something is off—when the market doesn’t fit the usual pattern. That gut feeling, or intuition, becomes a vital edge.
In trading, this quick judgment—this instinct—is invaluable. Waiting until you have complete certainty, until the feeling "makes sense" logically, can often be too late. By then, the opportunity may have diminished, and the odds are stacked against you.
Robert Mercer, a prominent quant at Renaissance Technologies, famously said, “The signals we have been trading without interruption for fifteen years make no sense.” But rather than dismissing these signals, Mercer and his team trusted their intuition and developed trading models around these signals, that have consistently outperformed over time. - In other words, they may not fully understand why their signals in the models work, but they trust them regardless, without necessarily seeking to understand the underlying reasons.
Great traders learn to trust their instincts and develop systems that integrate this intuition into disciplined decision-making. Intuition enables us to connect the dots more swiftly, sense subtle market signals, and continuously update our mental map of the markets and their terrain in real time. Initially, this can help us avoid dangerous situations, but as traders gain experience, they harness it proactively to gain a strategic advantage.
Feeling and Thinking as Intertwined Processes
Antonio Damasio eloquently states, “We are not thinking machines that feel; we are feeling machines that think.”
He believes that our emotions and feelings are integral to our decision-making, especially under conditions of uncertainty.
In trading—and in life—learning to listen to, trust, and refine our intuitive insights can be the key to gaining a significant edge. It’s about recognising that sometimes, the feeling in your gut or the subtle signs in the market guide you more accurately than raw data or analysis alone.
However, this necessitates a deeper connection with yourself—creating space for your feelings and senses in your trading. It requires listening attentively to what your body and instincts are telling you.
More importantly, it demands the courage to be vulnerable—trusting those feelings even when there’s no guarantee they’re right. It’s this willingness to embrace uncertainty and risk that elevates decision-making and drives exceptional performance.
The AlphaMind Podcast: The Peter Brandt Episodes
The AlphaMind Podcast team recently had the honour of speaking with trading legend Peter Brandt, who first began trading in 1974 and has since become a renowned figure in the financial markets, sharing his insights and expertise widely.
This in-depth conversation lasted nearly two hours, so we decided to split it into two episodes, each capturing one half of the interview.
Here are the links to the 2 episodes;
Episode #145 Peter Brandt: Unlocking Market Wisdom with a Trading Legend – Part 1
Listen here: https://www.thealphamindpodcast.com/145-peter-brandt-unlocking-market-wisdom-with-a-trading-legend-part-1/
Episode #146 Peter Brandt: Unlocking Market Wisdom with a Trading Legend – Part 2
Listen here: https://www.thealphamindpodcast.com/146-peter-brandt-unlocking-market-wisdom-with-a-trading-legend-part-2/
We hope you enjoyed this newsletter and wish you the best of luck in the markets.
Steve and Mark - The AlphaMind Team
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