Go with your gut? Or not?

A long-running debate.
Is it better to trade using a discretionary approach or a systematic approach?

trading psychology discretionary systematic trading

As one of Chicago’s famed Turtle Traders, starting at age 19 in the 1980s, I was initially in the camp of the systems traders. As Turtles we were taught specific trading systems as well as a systematic approach. I believed that discretionary trading left too much opportunity for emotion. In my early experience, those traders who used their judgment in trading all too often ended up letting their emotions affect their trading in a negative way.

At the same time, some of the world’s best traders, like George Soros, trade from their gut. I personally knew traders who were successful at discretionary trading. In fact, most of the traders on the floor of the Chicago exchanges (which were the center of currency futures trading for the United States) were discretionary traders.

There wasn’t time for complicated trading system rules in the pits. Traders needed to react very quickly to the ebb and flow of the prices. A lot of the information used for trading decisions came from a trader’s intuitive sense of the emotional and psychological state of the other traders around them. It made sense that most pit traders traded using their gut intuition, their discretion.

So while my early trading was almost entirely systematic, I have always felt that there was validity to the discretionary approach when used with discipline. I have always considered right-brain intuition to be an undervalued ability.

When I wrote my first book, Way of the Turtle, I naturally focused on the systematic trading approach since that was the approach that I learned as a Turtle, and it was the one that has been so successful over the long-term for trend-following traders. In the last several years, however, I have noticed that many systems traders and many readers of my first book have come to the conclusion that there is no role for right-brain thinking in their trading.  I believe these traders are missing out by neglecting an important part of human intelligence.

The best traders have learned to combine the benefits of left-brain analysis and logic with right-brain big-picture intuition; it is an approach I call whole-mind trading.

Gut Intuition versus Emotions

Trading with gut intuition is not making decisions emotionally, or from a position of fear or greed. It is simply taking advantage of both hemispheres of the brain, the left-brain, which processes information in a linear, ordered, top-down manner, and the right-brain, which processes information by assembling small pieces into a whole picture, a bottom-up manner.