Tuesday, December 15, 2009

Faith, Trading from Your Gut

I have an advance reader’s copy of Trading from Your Gut: How to Use Right Brain Instinct & Left Brain Smarts to Become a Master Trader by Curtis Faith. It’s scheduled for January publication by FT Press.

Let me say up front that I was hesitant to ask for a review copy because I suspected that I, the “left brain smarts” reader, would pan it. From the title it sounded like yet another throwaway self-help book. Well, I confess I was wrong. I found Trading from Your Gut stimulating, even somewhat therapeutic. Unfortunately, a brief summary of its major premises doesn’t do it justice. Stripped to its bare bones it sounds at best pedestrian. It’s far better than that.

The book is written for the experienced left-brained trader who could improve her performance by tapping into the power of her right brain. What does the right brain have to offer? It notices, it reads patterns, it is speedy; in fact, it can make decisions almost instantaneously. It generates ideas and recognizes opportunities; it gets the big picture.

The intuition that comes from the right brain is radically different from emotion. It is, in fact, profoundly logical, even though it does not lend itself to rational analysis. And, Faith argues, it is an absolutely essential ingredient in successful trading. Trading requires decisiveness in the face of uncertainty; both hesitation and panic can kill you. To be decisive you need to stop analyzing and call on your intuition to pull the trigger with conviction and confidence.

How does the trader train the right brain? The same way you get to Carnegie Hall—practice, practice, practice. The key is to force yourself to make trading decisions quickly; this requires you to keep things simple. “Simplicity enables speed, and speed forces simplicity.” (p. 136)

I have focused on intuition over analysis in this review because this is where Faith makes his contribution to the literature. Of course, he contends that the successful trader has to use both hemispheres of his brain, essentially cycling between them. Analysis gives the trader the confidence to trust his gut.

Faith draws on examples from such diverse experiences as car racing, tangoing, fishing, and sky diving to illustrate his theses. He spends some time discussing findings from behavioral finance. And he demonstrates the proper way to use right-brain intuition and left-brain smarts in what he calls the rebound swing method.

All in all, there are lots of goodies in this book. It’s a very fast read (that it’s under 200 pages helps), but it’s not easy to summarize because there are too many subtexts. I thoroughly enjoyed it.

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