You can trust your gut
WHAT attributes make for a successful trader? Is it comprehensive knowledge of an industry? The ability to read the markets? Luck?
Or might it be something subtler and seemingly unrelated – namely, an awareness of one’s own heartbeat?
In a study published on Monday in the journal Scientific Reports, a group of researchers suggest that high-frequency traders who were more sensitive to their own bodies routinely made more profitable trades, and had longer careers in a notoriously unforgiving profession.
The team, which included professors from universities in Br ita i n a nd Aust ra l ia, was investigating a theor y developed by John Coates, a former t rader who u nt i l recent ly was a researcher at Cambridge University. Coates set out to try to identify whether “gut feelings” were merely the stuff of myth, or something real and measurable.
“I always knew when I was trading on Wall Street that there was something extra to making it,” said Coates, who traded fixed-income derivatives at Goldman Sachs and then Deutsche Bank in the late 1990s. “There were times when something just felt right.”
Coates moved on from Wall Street to become a researcher a nd aut hor. In a prev ious study, he demonstrated that traders showed physiological signs of stress during market volatility, even when they did not rat iona l ly bel ieve t hey were at risk of losing much money.
And in his 2013 book, The Hour Between Dog and Wolf: How Risk Taking Transforms Us, Body and Mind, Coates relates how George Soros, the hedge fund billionaire, relied on socalled animal instincts. When Soros was actively managing his fund, he would suffer from backaches, and said that he “used the onset of acute pain as a signal that there was something wrong in my portfolio”.
Building off that work, Coates wondered whether traders who were more sensitive to their own bodies might perform better at their jobs.
To investigate his hypothesis, Coates and his colleagues worked with 18 traders at a hedge fund in London in 2012. The subjects, all men, were high-frequency traders, buying and selling bond futures and other products.
Using heart rate monitoring equipment, Coates and his colleagues assessed the traders’ ability to silently count their own heartbeats without touching their chest or any pulse point. A control group of 48 men who were not traders was also tested for their ability to monitor their heart rates.
Overall, the hedge fund employees were substantially more accurate than the control group, suggesting that on balance, the high-frequency traders were more attuned to their own bodies than the general public.
The hedge fund, which was not identified, gave Coates and his colleagues access to the traders’ employment history, including their profits and losses, and tenure in the industry.