DEVELOPING STOCK TRADING INTUITION

A word of explanation here before we go any further.  When I speak of stock trading intuition I am not referring to the phenomenon of knowing what is about to happen, such as having an intuition that the plane you are about to board is going to crash.

What I am referring to here is coup d’oeil, a French word which means “a quick look or glance.”  In the military, brilliant generals are said to possess coup d’oeil or “the power of the glance; the ability to immediately see and make sense of the battlefield.”  Carl von Clausewitz, the 19th Century military philosopher, wrote in his treatise ON WAR, that coup d’oeil is the military leader’s ability to recognize the precise moment of truth in battle “that the mind would ordinarily miss or would perceive only after long study and reflection” (102). 

In trading, you do not have a long time to study and reflect on a trade.  If you do, you will miss it!  Your rules are your “study” and the historical analysis of your high probability trading pattern is your “reflection”.  In other words, successful traders are extraordinary because they do not miss the obvious.  Successful traders can look at their charts and immediately know whether or not there is a trade.  Successful traders possess coup d’oeil.

What are the key attributes of someone who possesses coup d’oeil?  Better yet, if you do not have it how long does it take to claim it?  I am a visual person-that is why I trade with candlestick charts-so let’s put my idea into an illustration and then we can go from there.

 

COUP D'OEIL

Much like a military leader who has to make very important decisions in the heat of the battle, stock traders have to make financial decisions in the ever changing landscape of the market.   These decisions require the following characteristics of coup d’oeil.

1.  DETERMINATION:  Clausewitz defines determination as an interaction among three qualities: ambition, motivation, and commitment.  These ingredients allow the trader to apply discipline to his or her trading methodology.  If you lack discipline it may be because you have not made an ambitious, motivated commitment to do so. Discipline is a direct result of your willingness to succeed and allows the trader to go from having a good set of rules to actually following them.

2.  INQUISITIVENESS:  Just another word for curiosity and is the ever-present desire for information and understanding.  Unfortunately this characteristic can easily turn into  analysis paralysis, wherein the sheer quantity of information overwhelms the decision making process itself.  The solution is to remain focused on a very small segment of the market and is at the very heart of CROSSHAIRS TRADING. There is just too much information out there to ever be able to make sense of it all.  Instead, the idea should be to direct your energy toward your trading methodology and not stray when tempted to.  Professional traders will agree.

3.  COMPREHENSION: This is the trader’s ability to attend to the smallest details of his or her trading plan.  I believe a trader must have rules for entering and exiting a trade before the trade is made.  In the beginning these rules can be in the form of a checklist or what I call an INTELLIGENCE REPORT wherein before each trade all the details of your rules are checked and verified.  With time, the rules become such as a part of your psyche that the checklist is in your head and can be confirmed with quick precision.  The key is to never change the rules. When the rules stay the same your mind will not be able to play tricks on you.

4.  QUIET CALM: Much like patience, the successful trader exhibits a simple, unexcitable mood in the face of a market that is in a constant state of flux.  There is no way you can have emotionless trading.  It is impossible unless you turn into a robot.  What is possible is to bring your emotions under control.  While others panic, cry, throw temper tantrums (and their computer monitors), doubt their trading edge, etc.  you remain calm in the knowledge of your simple rules based methodology.  You know when to enter battle, you know how long you can stay in battle, how many resources you can commit to battle ($), and when to exit the battlefield.

When the trader combines all of these he or she possesses coup d’oeil and with a clear mind be able to assess the battlefield and form an overall vision, possess a high tolerance for uncertainty knowing anything can happen once battle begins, and then have the ability to reverse course or exit the battlefield if conditions change. 

How long does it take to possess coup d’oeil, or the ability to make a quick, accurate assessment of the battlefield? The answer depends on how soon you are willing to put the above into practice.  The first step, and the hardest one, is your willingness to do so.

The sands of history are littered with wrecks of finely conceived plans that expired for want of cool calculation. 

B.H. Lidell Hart

 

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