Trading Psychology: Intuition & Gut reactions

[Edit 27.NOV.2009: Just collected some more evidence in THIS post regarding gut-feel and intuition]

To quickly get straight what intuition means: I for one use the word as shorthand representing a complex set of interrelated observations and arguments that are mostly non-cognitive or somehow running in the background of our mind. Prof. Gigerenzer defines an intuition as a judgment that (i) appears quickly in consciousness, (ii) whose underlying process we are not aware of, yet (iii) is strong enough to act upon.

Of course few traders rely solely on intuition as the basis for their trading strategy. However many use it I believe. The explanation for putting on certain trades would be very time-consuming to express rationally especially with traders in a stressed environment.

I read in a book that "...it is effectively mathematically impossible for even an expert chess player to calculate rationally all the possible moves and countermoves available to the player and his or her opponent." Yet they do so in a way. Therefore one could argue that they put to use their intuition in a very effective way.

Gut reactions are often the result of simple rules of thumb. We're not really aware of these rules of thumb most of the time and they'll be based on a simple reason often. Intuitive descisions aren't only more economical and faster but also often simply better Gigerenzer concludes.

Gut reactions are not necessarily incompatible and in some cases may even be complimentary to a good trader I believe. Simple & informal heuristics can often turn out successful in decision making studies* in unrelated fields have found.

Would be interested on other peoples point of view whether some form of instinct or intuition guides their trades aswell.

*Gigerenzer (2007) & (Hutchinson & Gigerenzer, 2005, p. 98)

Gerd Gigerenzer is a german psychologist working at the Center for Adaptive Behavior and Cognition (ABC) in Berlin & former Professor of Psychology at the University of Chicago, and John M. Olin Distinguished Visiting Professor at the University of Virginia Law School. He has been a Fellow at the Center for Advanced Study in the Behavioral Sciences in Stanford, and visiting scholar at Princeton University and Harvard University.