With a more than a passing acknowledgment to the wisdom (or lack thereof) of ascribing generalized results to small samples I can say that all the people I know who I have observed to be successful sports gamblers and card players are lousy futures and options traders.
By lousy I mean lose everything in the account on one or two trades even when there may been one or more strings of previously successful trades.
I wondered why that was and if anything useful could be learned from their experience. One characteristic that seemed common was that the gamblers seem to overestimate the possibility of the gain from an option or futures trade while they tended to downplay or perhaps even ignore entirely the risk of loss.
I ascribed this behavior as a carryover from the gambling process. When you make a wager on a sporting event or call a poker hand you are in effect going for broke. So the usual process for the gambler is either win or lose everything every time, and it did not seem so strange that the same psychology would be applied to their options trading. Futures trading is a little different in that you can lose more than the value of your account but in practice your broker will sell you out and help avoid some pain.
That's all probably interesting but not very informative. I think I may have gotten the insight while I was sorting through some books and picked up "Blink: The Power of Thinking without Thinking."
Blink introduces us to the power of "thin-slicing." Thin-slicing is a neat cognitive trick that involves taking a narrow slice of data, just what you can capture in the blink of an eye, or the data from very few scattered samples, and letting your intuition do the work for you.
Take the 'Love Lab' at Washington University, where psychologist John Gottman has been thin-slicing the way couples interact since the early 1980s. In no more than 15 minutes of mere observation, Gottman can predict with 90% accuracy whether a couple will be together in 15 years. Or consider how an art expert recently 'thin-sliced' a 2500 year-old Greek statue in the blink of an eye and was able to tell it was a fake after a bevy of experts had already confirmed its provenance. Or the retired soldier whose thin-slicing intuition can outwit the super-computers and staff officers of the US Armed Forces.
More appropriate to our example, in a series of drills professional card players "sensed" that a deck of cards was irregular long before they were able to specifically identify and vocalize the irregularity. The professional card players were also able to sense the irregularity significantly faster than other test subjects.
Blink draws from cognitive psychology to explain how our powers of thin-slicing intuition have nothing to do with the supernatural, and everything to do with our naturally evolved 'adaptive unconsciousness'. Our conscious mind is just the tip of the cognitive iceberg and what we think of as intuition is really the result of unconscious rapid cognition, fast and frugal information processing that goes on subliminally. Thin-slicing harnesses this powerful adaptive unconsciousness, allowing us to make smart decisions based on minimal information and minimal deliberation.
What the gamblers were doing was applying the thin-slicing intuition they had acquired from their successful gambling experience to their futures and options trading. And that is why they got it all wrong.
How do you explain this? A man with a broken hand went to the doctor. The man asked the doctor if it was serious and if the doctor could fix his hand so that he could play the violin. The doctor replied that the damage could be easily repaired and that he could indeed play the violin after the surgery. To which the man replied, "That's wonderful news because I could not play the violin before the accident."
The learning experience is that you can indeed trust your trader's intuition but only after you put in enough time with your trading method to have developed confidence with it. According to Blink that may take much less time than you think, but it also clear that actual, hands-on experience cannot be substituted.