Traders and investors in the financial markets frequently talk of the importance of gut feelings for selecting profitable trades. To find out the extent to which this belief is correct, researchers from the Universities of Cambridge and Sussex in the UK and Queensland University of Technology in Australia compared the interoceptive abilities of financial traders against those of non-trader control subjects.
This form of trading requires an ability to assimilate large amounts of information flowing through news feeds, to rapidly recognize price patterns, and to make large and risky decisions with split-second timing. This niche of the financial markets is particularly unforgiving: while successful traders may earn in excess of £10 million per year, unprofitable ones do not survive for long.
The study took place during a particularly volatile period – the Eurozone crisis – so the performance of each trader reflected his ability to make money during periods of extreme uncertainty. The researchers measured individual differences in each trader’s capacity to detect subtle changes in the physiological state of their bodies by means of two established heartbeat detection tasks. These tasks test how accurately a person, when at rest, can count their heartbeats. Each trader was given a score which, essentially, measured the percentage of right answers, and these scores were compared against data from 48 students at the University of Sussex.
The researchers found that traders performed significantly better at the heart rate detection tasks compared to the controls: the mean score for traders was 78.2, compared to 66.9 for the controls. Even within the group of traders, those who were better at the heart rate detection tasks also performed better at trading, generating greater profits.