The Role of Intuition in Trading

Contributor Image
Written By
Contributor Image
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.

In trading, there are countless variables that can impact the outcome of any trade, so intuition can be a reliable tool in many circumstances.

For experienced traders, it can provide an intuitive edge – guiding them beyond data and analytics.

But what really is intuition, and how does one use it in trading?


Key Takeaways – Intuition in Trading

  • Intuition in trading emerges from accumulated experience and self-awareness.
  • It goes beyond mere hunches and is cultivated over many years through recognizing market patterns and nuances.
  • It’s essential to differentiate intuition from biases and emotions, as the latter two can greatly distort judgments.
  • Balancing intuition with concrete data and self-awareness ensures a more effective decision-making approach (intuition + strong and careful analysis).
  • We provide several examples of the use of intuition in trading.


Developing Intuition in Trading

Intuition in trading isn’t just about a fleeting feeling or a hunch. It’s cultivated over time and refined through experience and self-awareness.

Experience and Knowledge

Every trade or circumstance studied in the market, whether profitable or not, offers a learning experience.

Over time, traders start discerning patterns, identifying market nuances, and understanding the various ways markets react.

This cumulative knowledge forms a bedrock for their intuitive abilities.

It’s analogous to how skilled chess players operate in unknown positions based on pattern recognition and general principles of the game.

Certain moves might immediately speak to them, then they’ll calculate the consequences of those.


Recognizing one’s own tendencies, biases, and emotions is paramount.

A self-aware trader understands the difference between intuition and emotion-driven decisions.

This distinction helps in making more calculated and less impulsive decisions.


Using Intuition in Your Trading Strategy

Intuition, while powerful, should not overshadow the importance of thorough market analysis.

Here’s how one can use it without getting swept away:

Tune in to your instincts

Sometimes, the subconscious mind picks up on subtle cues that the conscious mind might overlook.

If you consistently feel a certain way about a trade or circumstance – and you’re experienced and knowledgeable – look deeper.

Your instincts could be onto something.

Combine intuition with analysis

Purely intuitive decisions can be very risky.

It’s imperative to back up your “gut” feelings with sound analysis and consideration of other perspectives from well-informed and knowledgeable others.

This ensures that you’re not just relying on a hunch but have concrete data supporting your decision.

Commit to the journey

Trusting your intuition doesn’t happen overnight.

It requires years of experience, discipline, and a commitment to continuous learning.

Real-world Applications of Intuition in Trading

So, how do traders apply their intuition in real-world scenarios?

Optimizing trade timing

An intuitive trader might feel the time is ripe for buying a stock.

This could be due to various subtle cues they’ve picked up on – well before traditional indicators highlight the opportunity.

We look at an example of this below (“Example #1”).

Risk Management

Intuition can act as an alarm bell.

A trader might sense that something’s amiss with a particular trade and decide to mitigate potential losses by exiting early.


Examples of Intuition in Trading

Let’s look at some examples.

Example #1

For example, let’s say AI startups are getting lots of venture capital funding.

That might give a trader the hunch that leading chip companies might be poised for a rise soon in public markets, given AI applications require a huge demand for them.

Of course, it’s important to know what’s in the price first before committing to a trade.

If little growth is discounted in, it could be an opportunity.

Example #2

For example, let’s say a trader sees the following:

Generally, these are a marker of falling earnings (and sometimes rising interest rates), and hence falling stock prices, all else equal.

A trader’s intuition of seeing stocks rising alongside these three factors could set off an alarm bell of a future regression.

Of course, there are many other things that affect stock prices, so a thorough analysis has to be done.

Example #3

Let’s say a country is undergoing a balance of payments problem and traders want to trade their currency, bond, or equity markets.

They might have an intuitive idea of how things will go (having seen it many times before).

Then they’ll look at historical cases of similar problems happening in the past, look at the current set of circumstances in light of that, and decide what to do.


Intuition vs. Biases vs. Emotions in Trading

Intuition, biases, and emotions are all internal driving forces influencing our decisions, but they differ in origin, nature, and impact:


Intuition is a subconscious process that offers insights based on past experiences, pattern recognition, and accumulated knowledge.

It often surfaces as a “gut feeling” and can guide us in situations where logic and data might be inconclusive.

It can serve as a starting point. Then analysis and calculations take over.

Intuition is generally shaped over time and through repeated exposure to similar scenarios.


Biases are systematic and predictable patterns of thinking that can lead to errors in judgment.

They arise from our brain’s attempt to simplify information processing.

For instance, confirmation bias might lead us to favor information that confirms our pre-existing beliefs, overlooking contradicting evidence.

Biases can distort perception and decision-making, often without our conscious awareness.


Emotions are intense feelings that arise in response to external stimuli or internal thoughts.

They can be fleeting or long-lasting and can heavily influence our decision-making process.

Emotions like fear, greed, or excitement can lead to impulsive actions, which may not always align with our long-term best interests.

Not all emotions are bad, like being inspired.

However, harmful emotions like anger or greediness can lead to very poor decision-making.


While intuition is an informed feeling, biases are cognitive shortcuts that can mislead, and emotions are intense reactions that can cloud judgment.


FAQs – Intuition in Trading

What is intuition in the context of trading?

In trading, intuition refers to a trader’s ability to make decisions based on subconscious insights.

These insights typically arise from past experiences, pattern recognition, and a deep understanding of the market(s) they trade or are involved in.

While it’s often difficult to articulate the precise reason behind an intuitive decision, it’s like a “gut feeling” that guides traders in certain market situations.

For example, a lawyer may have seen so many similar cases in the past to the one they’re working on that they have a strong intuition about how a certain case will transpire.

Or a doctor will have seen so many patients with a particular set of symptoms that they’re likely to know the general progression of the illness or disease.

These intuitive thoughts will then be backed up with analysis and testing.

How does intuition differ from emotional decision-making in trading?

Intuition and emotion are distinct driving forces behind decisions.

Intuition, as mentioned, stems from subconscious insights and pattern recognition, whereas emotional decisions are typically reactions to external stimuli like fear, greed, or excitement.

While intuition is a culmination of experience and knowledge, emotions can often cloud judgment and lead to impulsive decisions that might not be in the trader’s best interest.

Intuition can be a good thing when it’s backed by lots of experience.

Good emotions can be a good thing (e.g., inspiration).

Harmful emotions are generally terrible.

How can traders develop and enhance their intuition?

Traders can cultivate intuition by:

  • Gaining Experience: The more exposure a trader has to different market situations, the better their intuitive faculties become.
  • Continuous Learning: Regularly updating knowledge about market trends, strategies, and technologies can provide deeper insights.
  • Reflection: Reviewing past trades, especially mistakes, and understanding what went right or wrong can enhance intuitive skills.
  • Meditation and Mindfulness: These practices can help traders become more attuned to their subconscious thoughts. Some swear by meditation; others have never tried it.

What role does experience play in shaping a trader’s intuition?

Experience is fundamental in shaping intuition.

With each trade, traders witness various outcomes and gather insights about market behaviors.

Over time, they begin to recognize patterns, anticipate market moves, and make decisions with greater confidence.

This accumulated knowledge and exposure significantly influence the development of a trader’s intuitive abilities.

Can intuition be relied upon as the sole basis for trading decisions?

While intuition is a powerful tool, relying solely on it can be risky.

Trading decisions should ideally be a blend of intuition and careful analysis.

Intuition can provide direction on what to do, serve as a source of idea generation, tell one what to probe further, or validate a decision.

But it’s essential to have concrete data and analysis to back it up.

How do intuitive decisions complement technical and fundamental analysis?

Intuitive decisions can serve as an initial indicator or a final checkpoint.

For instance, a trader might have an intuitive feeling about a potential market movement, which they then validate with careful calculations and analysis.

Conversely, after conducting thorough analysis, intuition might help in the final decision-making by offering an extra layer of confidence or caution.

Are there specific market conditions where intuition plays a more significant role?

When traditional indicators are inconclusive, a seasoned trader’s intuition can guide them based on their past experiences and understanding of similar scenarios.

How can traders differentiate between a genuine intuitive insight and a mere hunch?

Differentiating comes down to understanding the source.

Genuine intuitive insights often have a foundation in past experiences, knowledge, and subconscious pattern recognition.

A hunch, on the other hand, might be a random feeling without a solid base of information, evidence, or understanding.

Over time, with self-awareness and reflection, traders can get better at distinguishing between the two.

Can intuition be misleading or incorrect in trading scenarios?

Like any other decision-making tool, intuition is not infallible.

There will be times when a trader’s gut feeling is way off the mark.

This reinforces the idea that while intuition is valuable, it shouldn’t be used in isolation.

How does self-awareness contribute to effective intuitive decision-making in trading?

Self-awareness enables traders to recognize their own biases, emotions, and patterns of thought.

By being acutely aware of their internal state, traders can differentiate between decisions stemming from genuine intuition and those influenced by emotions or biases.

This discernment is very important for effective intuitive decision-making.

Are there tools or techniques to train or fine-tune trading intuition?

Yes, traders can use various techniques to hone their intuition:

  • Journaling & Writing Down Criteria for Making Decisions: Keeping a detailed trading journal helps traders track their decisions, the intuition behind them, and the outcomes.
  • Backtesting: Reviewing historical data and making intuitive decisions on past scenarios can help refine intuition.
  • Mentorship: Learning from seasoned traders can provide insights into how they use intuition in their trading strategies.

How do seasoned traders balance intuition with other decision-making processes?

Seasoned traders typically use a holistic approach.

They might start with an intuitive feeling, validate it with analysis, consider current market conditions and any historical context, and then make a decision.

Experience teaches them the value of each tool and how to integrate intuition with other processes.

Is there empirical evidence supporting the benefits of intuitive trading?

While there are numerous anecdotal accounts of traders benefiting from their intuition, empirical studies on the topic are somewhat limited.

However, research in related fields, like decision-making and psychology, suggests that intuition, which arises from expertise and experience, can be beneficial in decision-making scenarios.

There are some studies we can share if you’re interested, such as the one here and here (the second of which also covers quantitative skills and behavioral biases).

Can over-reliance on intuition lead to bad trading results?

Yes, over-reliance on any single tool or approach, including intuition, can lead to pitfalls in trading.

Diversifying decision-making processes ensures a more balanced and well-informed approach, reducing risks associated with sole dependence on intuition.

How do traders handle situations when their intuition is at odds with their analysis?

In such situations, traders often re-evaluate both their intuitive insights and their analysis.

They might seek additional data, get a second opinion, or take a step back to reassess the situation.

Weigh both intuition and analysis before making a decision.



While intuition can offer traders an additional layer of insights, it should be viewed as part of a holistic decision-making process.

It isn’t a substitute for comprehensive market analysis or careful calculations.

When balanced with rigorous analysis, intuition can serve as a compass for idea generation or probing something further.

And, just like any skill, the more it’s honed, the more beneficial it becomes.