This is How To Develop ADVANCED TRADING Instincts

Have you ever wondered how some people seem to have a gut feeling for what's going to happen in the market and always know the best call at the right time to make the most money? Well, it's something you can develop yourself and I'm going to show you how. Welcome back everyone. This is lesson six in the High Performance trading series. And in this video I want to show you how to improve your trading instincts so you become a better trader. And to do that, we need to take a look at your intuitive defensive systems. To start, I want you to imagine yourself stood right on the edge of a cliff, looking down, without any kind of safety harness. Your defensive intuitive system is primarily concerned with helping you avoid danger. And it works like a friendly advisor to start with giving you a warning. So it may do this by giving you butterflies, increasing your heart rate or making you feel a bit uneasy. But if you ignore the warnings and you move closer to the edge, it would increase the volume of its advice to the point you might completely freeze and be unable to move at all. In that scenario, this powerful judgment and decision making system is operating with your best interests at heart. It stopped you going over the edge. The reason you're still alive today is because of this system. But what if you found you were uncomfortable standing on a chair? Is that irrational? Well, you could easily be forgiven for thinking that your decision system was working against you and that something has broken. But you need to understand what this system is trying to achieve. Your mind is never working against you. Now, a lot of amateur traders will disagree with that statement immediately. And the reason is because every part of their live account trading experience tells them otherwise. Logically, they know to let winners run, cut losses, stick to their rules, and yet they're unable to do it. So it's easy to assume their own mind is working against them and it's a psychological problem. It isn't. In our brain there's a region called the amygdala which is your intuitive defensive decision system. It has a standard set of parameters that govern what it thinks danger is. But if you get hurt in any way, shape or form, it will assume that it got it wrong and it didn't warn you strongly enough to avoid a situation. So the next time it sees a similar situation, it's going to warn you earlier and louder. It's a defense mechanism that is capable of learning if the last time you were off the floor at a height, if you fell and hurt yourself, your defense system will learn from that. The next time you step up on a chair or climb a ladder. It's going to say to you, hey, you're off the ground. This is risky and the last time you did this you fell and broke your arm. Get down quickly. That is not a mind but is working against you. It's not being irrational, it's doing its best to protect you and keep you out of danger. Now the problem for traders is it can be over sensitive. Think of your defense system as a smoke detector. You've probably experienced cooking something and the alarm starts beeping and it can be annoying. But we would all prefer to have an oversensitive smoke detector that gives us the occasional false alarm than an under sensitive one that fails to warn us the house is on fire when we're sleeping. That's what your intuitive defense system is doing. It's better to be over sensitive than under sensitive. We just need to retrain it to be better suited for trading. If we look at the example of a fear of heights, you might start to retune it by standing on a small box and jumping off just to demonstrate that you won't get injured by the impact. And then progressively you move up to slightly higher heights more often, exposing your amygdala to the situation of being off the ground as much as possible and teaching it that these small heights are perfectly safe. The more it sees this, the more it learns and the more it will increase its tolerance. You're retuning its sensitivity and it's the exact same process with trading. Your defense system is oversensitive and the loss of any amount of money, no matter how small, is perceived as a risk you should be protected against. So you need to repeatedly expose it to lower risk situations so that it progressively becomes retrained to feel comfortable at those risks. Risk levels. You need to teach it that losing $50 isn't a risk to your life or your well being. And then you gradually increase the risks until you've regened its sensitivity. Now, moving beyond that, you need to understand what intuition is, what it isn't, and more importantly, when and when not to rely on it. This is something that separates amateurs from professionals. Intuition is really just the sum total of your experience, your long term memory and the patterns it's seeing in those memor. A beginner trader has intuition, but those intuitions will be wrong because less experienced traders by definition have less experience. They have too few memories and too little information from which to recognize patterns. If new traders act on their intuition, they will lose money. The main issue is that intuitive thinking feels right even when it's not, as you will remember from the question about the costs of the bat and the ball in the last lesson, if intuition is not trained correctly or it doesn't have enough exposure to consistent information, it will just bombard you with false signals. If traders are constantly overriding their trading systems, intuition doesn't have enough consistent information to see the real patterns that exist in the market. In fact, traders who are constantly overriding their systems are actually feeding their amygdala bad information. They're giving it bad training and making their intuition worse and even less trustworthy. And that's why post trade analysis is so important. Methodically reviewing every trade and trading session is how you feed quality information to your amygdala to build your intuition. It's also why as a new trader, you must stick to your system regardless of wins or losses. You need to have consistency to build a suitable memory cache from which to identify patterns. This is especially true for training our intuition to understand thinking in probabilities. As I've said in previous videos, our lack of understanding about probabilities and the random distribution of results is one of, if not the biggest causes of failure for new traders. We can't help but think that after a string of four or five back to back losses that something must be wrong with the system. So we change the rules or we at filters or we look for a new system altogether. That is a classic case of our intuition being wrong simply because it hasn't had enough exposure to a probabilistic environment. Whether you like it or not, trading easy game with probabilities and if you want to succeed, you need to understand them. You've got to follow your system long enough without any changes to build an accurate picture of how wins and losses are distributed. So your intuition can learn what is normal and what is not. And that will allow you to identify when something is legitimately wrong and you do need to step in and change something, or that everything is absolutely normal and you'll make more money sticking to your system. The challenge for traders trying to get better at decision making is that defensive and intuitive thinking is initially very hard to decode. The messages we get are mixed up with feelings, emotions, habits and so on. And without fully recognizing or understanding what defensive and intuitive thinking is and what its objectives are, we are easily swept away on a wave, reacting without thinking and starting a chain reaction of events that we're not entirely in control of. Now, institutional traders benefit from role models or discussion with other traders on their desk, collaborative decision making, managers watching over them and people to Talk to to discuss their strategies and thinking. Retail trading is quite long and those benefits are largely unavailable. So the potential for decision confusion between logical, intuitive and defensive thinking is much higher. That's why I like to work one to one with my clients rather than sell courses. The personal interaction and back and forth discussions are what help accelerate the learning. So as a retail trader, you have to be especially aware and deliberate in your processes, particularly with your after trade analysis and record keeping. So now let's look at six common trading myths or misconceptions within the trading community and hopefully you will have a better appreciation of why they're not true or at least not accurate in light of what we've covered on the intuitive defense system. So number one, you just need to be more disciplined. That's basically telling yourself to disregard all of the messages that your intuitive system is sending you in order to keep you safe. That's a terrible idea. What you should really be doing is listening, understanding and respecting those messages and using them to your advantage. Number two, you just need to stick to your system. That is true for new traders in the short term in order to gather memories and calibrate your intuitive system. But the system does not make your decisions. It advises you on what is likely to happen, not what is guaranteed to happen. And therefore you need overall control and the final say. Number three, all you need is a good system. Now of course, success does depend on having a system that exploits a real edge in the market. But to execute the system, even if it was mechanical and all you did was turn it on and off, well, when real money is involved, you need to understand your own role in judgment and decision making. As I just said, the system is an advisor as to what is more likely to happen under set conditions. You need the skill to make the final decision and happy intuition to know when something is wrong. Number four, you just need to be rational and logical. Well, that's just impossible. Your intuitive and defense system is a thousand times more powerful and much faster than your logical system. And it never rests. You can't turn it off, you need to work with it, not without it. Trading shouldn't be a battle, it should be effortless. And number five, hand in hand with that is the opposite extreme of saying you just need to go with your instincts, your intuition, you've got feel. Surrendering to every urge, thought and feeling that your defensive and intuitive system offers up will always be a disaster. Your logical system has to step in in a kind of supervisory role and ask additional questions to confirm if the intuitive decision is the best. In this situation, the two systems have to work cohesively together. You cannot trade successfully without both. And number six, you just need more experience. Experience is basically feeding your intuition with many trade outcomes. For experience to build proper, high quality and trustworthy intuition, you need to teach it good lessons. And the way to do that is by having long periods where you trade consistently in line with your system rules and by conducting good trade evaluation after each trade. Remember my analogy in the last video about how driving is comparative to intuitive trading? So remember how you built intuitive driving skills. You drove the same car every day. You adjusted your suit to the same position every time you got in the car, your mirrors were angled the same way every time you drive, and you follow the same sequence of putting on your seatbelt, starting ignition, looking where you're going, select the gear, handbrake off, and finally drive. It's the same sequence repeated consistently over and over and over and eventually it's automated into your intuitive system that is High quality experience. Can you imagine how bad your driving would be if you tried learning in a different model car each week? Or switched from left hand to right hand drive or from automatic to manual systems? You could get thousands of hours of experience like that and still never be good enough to pass a driving test. But 30 or 40 hours of good quality experience is often all it takes to pass your test. The quality of your experience is what counts, and it certainly counts in trading. If you want to have that intuitive gut feeling that you can rely on in your trading, that's how you do it. I hope you've enjoyed this video and you found it helpful. I've got two more videos to upload in this series, so please keep your eyes open for those. If you want to support the channel, please like, comment and share this video. And if you haven't already, please consider subscribing. Thanks for watching and I'll see you next time.