How to Develop Expert-Level Intuition as an Investor

What does it mean to have good intuition... or even expert-level intuition?

When you have expert-level intuition, making the correct decision comes naturally most of the time. You don't have to force the issue or fight against yourself. It simply "feels right."

Importantly, you can develop this intuitive sense with investing – what some would call a "gut feeling."

It doesn't mean you'll always avoid mistakes or losses. But it does mean your intuition can be your ally rather than your enemy.

When your intuition has been trained to steer you in the right direction, it means you can "trust your gut" and lean into it... reinforcing your odds of investment success.

Today, I'll show you how this is possible, and the three things you need in order to train your investor's intuition...

What I call expert-level intuition is more formally known as "recognition-primed decision-making," or the "RPD" model. It's what allows experts to make intuitive decisions in complex situations.

One of the most famous examples of how this works is a real-world study of experienced firefighters, conducted by cognitive researcher and intuition expert Dr. Gary A. Klein...

One commander told Klein about a time his team was fighting a fire inside a house. The fire was small, but the flames were strangely persistent. For whatever reason, they refused to die out. Meanwhile, the room felt oddly warm.

The team leader was puzzled at first. Something didn't add up. Suddenly, all his instincts screamed, "Danger!" He scrambled to get the team out of the house. Moments after his crew reached safety, the floor collapsed.

It turned out a fire was raging in the basement. No one had any idea, but the fire commander's instincts picked up subtle clues that something was off. His experience told him, "This is not how fires are supposed to behave."

When the fire commander told Klein this story, he said he thought it was ESP, or a kind of sixth sense, that saved his men that day.

But Klein knew it was the power of recognition – the ability of the subconscious to pick up information from small cues and subtle hints, based on experience, and to take the right action as a result (getting everyone out of the house). That's expert-level intuition.

So how do you develop this skill as an investor?

Daniel Kahneman, the behavioral science pioneer whose Nobel Prize-winning research helped shape our software at TradeSmith, talked about how to make Klein's discovery work for you in a recent interview.

Kahneman pointed out that to develop expert intuition in a complex field, you generally need three things:

  • A regular world (a consistent and repeating environment)
  • A body of experience (familiarity with different scenarios)
  • Rapid and clear feedback (accurate signals that show what's happening)

These are all available to investors... but how well you use them depends on you.

The stock market is a regular world in the sense that the same things tend to happen over and over again. Market history never fully repeats, but it certainly "rhymes." The same factors drive investor behavior year in and year out. The same long-term economic cycles continue to oscillate... And so on.

This regular world allows you, as an investor, to develop a body of experience over time – because future market environments will have characteristics and factors you can recognize.

You can experience different investment scenarios and learn from them. (Ideally, with the more painful and unpleasant scenarios, you can observe others experiencing them and learn from a distance.)

But in order to turn this body of experience into expert intuition, an investor needs clear feedback on his or her decisions.

And this is where a disciplined investing approach, with structure and rules, truly pays off.

If someone says he has 20 years of experience in the market, but he never developed any logical rules or a structured way of doing things in all that time, then his years of experience don't mean much. He never attempted to turn market feedback into a set of logical, repeatable decisions.

If you do create a set of rules and set out to improve them, however, you give your intuition something to build on. You can look at the market's feedback on your decisions to determine whether they were good or bad... and whether you should use them again in the future.

Do this consistently over time, and you can develop the natural "feel" – the expert intuition – we are talking about.

The best way to start is to make a plan for your trades, follow the plan, and track the results. Know when you got in, when you'll get out, and why. Then, improve on that process based on your results.

From there, great software can help you analyze the current state of markets and make wise decisions in the moment. It can also track results from the past and give you meaningful ways to learn from your own investing history.

That is why software designed to help make investors successful (not to replace them) is at the heart of my own work.

When you put it all together, it is possible to develop good intuition, or even expert-level intuition, as an investor. And the benefits are more than just financial.

You'll find that investing becomes much easier when you no longer fight or sabotage yourself. You'll improve your chances of making big profits... And not only that, but you'll have more fun doing it.


Dr. Richard Smith

Editor's note: Richard has designed a simple software solution to help you make better buys and sells... with clear signals to guide your decisions. Not only that, but he recently held a special event to share why it could make a huge difference for your profits in 2019. For the details, watch a replay of the event right here.

Further Reading

Your brain can be your friend in the markets... or your worst enemy. Richard details a common mental hang-up that could jeopardize your investments – and how to fight it – right here: How to Beat the Most Dangerous Investing Bias.

Trading without a plan is just a fancy way of gambling. Learn a few key guidelines you can use to shape your investing methods – and measure your success – in this essay from Ben Morris and Drew McConnell: When Do You 'Get Up From the Table'?

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It's important to follow a strict set of rules when investing. It can even help you avoid this major bias when your ideas are challenged...

Market Notes


Today, we're checking in on a surprising winner in retail...

E-commerce companies like Amazon (AMZN) have put pressure on traditional retailers. But many brick-and-mortar retailers are adapting, and even thriving... like cosmetics maker Ulta Beauty (ULTA) and lifestyle retailer Tractor Supply (TSCO). Today's company proves again that retail isn't dying – it's changing...

Dollar General (DG) is a $31 billion discount retailer. This company offers deals on basic items that folks always need more of, like food, snacks, housewares, and cleaning supplies. For Americans who can't pay Amazon's pricey subscription fee to get same-day delivery on household essentials, it's an attractive option... In December, Dollar General reported third-quarter sales of $6.4 billion, a 9% increase from the same quarter a year ago. And its annual sales have risen consistently for the past five years.

As you can see in today's chart, DG shares are climbing, too. The stock is up more than 25% over the past year, and it recently hit a fresh all-time high. As long as people need basic household items, this discount retailer should continue to thrive...