Feeling the pulse: Traders cash in on gut instinct

LONDON-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 rate without feeling their pulse 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 added.

The volunteers being tested 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 only held their trading positions for a few hours at most and had to make “large and risky” split-second decisions, the study said.

“This niche of the financial markets is particularly unforgiving, and selection acts quickly: while successful traders may earn in excess of £10 million (12 million euros, $13 million) per year, unprofitable ones do not survive for long,” it said.

The study was carried out at the end of the eurozone sovereign debt crisis - a period of “extreme uncertainty” on the financial markets.

The authors were cautious about their conclusions, 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”.

ePaper - Nawaiwaqt