According to the academics from the University of Cambridge, if you don’t have a developed gut feeling, the career of a trader won’t be the best choice for you.
The tests done on the basis of the university suggest that hedge fund managers have greater interoception than people of other occupations. This may be the final evidence of the existence of such a thing as a gut feeling.
In a paper with the description of the tests and their results, scientists said that the surveyed traders predicted the time they survived within the markets, as well as their profitability. The group of scientists finds the so-called gut feeling one of the main factors that contributed to the right predictions.
The statement was made after the tests involving 18 professional traders in choosing “buy” or “sell” in roughly a second. To assess their ability to listen to their gut, the traders counted their heartbeats over various time periods without touching their chest or checking their pulse.
Results from this experiment appeared to show that the most successful traders were those best able to estimate their heartbeat, with the group markedly outperforming a control batch of people drawn from outside the finance industry, scoring 78.2 against 66.9 for the non-traders.
Moreover, according to the researchers’ findings, veteran traders did better still than their more junior colleagues. While junior traders, those with no more than four years of market experience, scored 68.7, only slightly above the average for the control group, their mid-ranking colleagues scored 76.3, while senior traders, those who had traded for at least eight years, did better, with a score of 85.3.
“Traders in the financial world often speak of the importance of gut feelings for choosing profitable trades. By this they mean that subtle physiological changes in their bodies provide clues, helping them rapidly select from a range of possible trades the one that just ‘feels right,’” the researchers wrote.
The findings are particularly startling, given a prevailing belief that over time an individual’s intelligence, education and training is no better an indicator of their skill as an investor than it would be for judging their ability to guess the outcome of the toss of a coin.
By contrast, the Cambridge study suggests that it may be possible to seek out and test trading ability. Banks and investment firms spend millions of pounds in identifying and training the best traders and it is likely that they will want to build on the Cambridge researchers’ work.