Traders cash in on their gut instincts

FINANCIAL traders armed with a strong “gut feeling” may make more profitable decisions in a high-pressure market environment, according to a scientific study carried out in the City of London business hub.

The field study ranked the ability of 16 male volunteers from an unnamed hedge fund to measure their own heart rates without feeling their pulses as a test of “interoception” — or sensing your body.

Their ability to do so “predicted their relative profitability and strikingly, how long they survived on the financial markets”, said the authors from the universities of Cambridge, Sussex and Queensland, published in Nature’s Scientific Reports journal.

They ranked heart-rate detection against daily profit and loss as well as number of years in the business.

“Our results suggest that signals from the body — the gut feelings of financial lore — contribute to success in the markets,” they said.

The volunteers were all involved in buying and selling futures contracts, which are an agreement to trade an asset at a specified future time at a price agreed ahead of time.

The traders were involved in high-frequency trades, meaning that they held their trading positions only for a few hours at most and had to make “large and risky” split-second decisions, the study said.

The authors were cautious about their conclusions,

Our results suggest signals from the body contribute to success

saying they “could not establish causation”.

But they said the findings could have “profound implications for the understanding of financial markets, specifically by reorienting attention away from risk takers’ psychological traits towards their physiological ones”. — AFP