Science

Gut instinct: Do traders have a sixth sense?

Justina Crabtree; special to CNBC.com
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Traders, trusting your "gut instinct" could be backed up by science after all, according to research conducted on the trading floor of a City of London hedge fund.

Researchers from the universities of Cambridge, Sussex and the Queensland University of Technology found in a study that traders' ability to sense their own heartbeats was directly correlated to their success in the financial markets.

Physiologists link "gut feelings" to "interoception," a term which refers to the detection of physiological signals from inside the body, as heart rate, hunger or pain.

"People with greater sensitivity to interoceptive signals … perform better in laboratory studies of risky decision-making," the report said.

Eighteen male traders engaged in high frequency trading were studied by the researchers. Their financial compensation for their work was entirely dependent on individual trading profits. Traders were also monitored during a particularly unstable period: the latter stages of Europe's sovereign debt crisis. According to the researchers' rationale, this meant that "the performance of each trader reflected his ability to make money during periods of extreme uncertainty."

The traders' ability to detect interoceptive signals was measured in two tasks that measure how accurately an individual at rest can perceive his or her heart beating.

Traders were asked to silently count their heartbeats without touching their chest or a pulse point, over varied time intervals. This was compared with the true value. After each count, the traders were asked to rate their confidence in their heartbeat detection.

Also, the traders were asked to judge if auditory tones were played synchronously with their own heartbeats.

Overall, the researchers from Cambridge, Queensland and Sussex discovered that the traders were better able to perceive their own heartbeats than non-traders participating in a control test. Also, "the interoceptive ability of the traders predicted their relative profitability, and strikingly, how long they survived in the financial markets."

Other studies have found that higher scores on heartbeat detection predict superior performance on some laboratory gambling tasks.

Previously, it has been found that the heartbeat detection ability is increased by stress levels. This could mean that experienced traders taking larger risks, and therefore subjected to greater stress, would be better at interoception and achieving trading success.

The researchers did acknowledge that the interoception might not directly link to trading success, and that there may be alternative factors also at play.

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