Jul

21

I've been thinking about whether there's a correlation between trading success and intelligence.  Do people with high IQs do better at the trading game than those with low IQs?  I wonder if high intelligence is a prerequisite for trading success, or if it even fits into the equation. 

Are traders in some markets smarter than those in other markets?  Are the index or currency guys smarter than the grain crowd, for instance?  Are the upstairs guys smarter than the floor guys?  Does higher education really matter, or even have a correlation with trading success?  Has any of this ever been measured before?  An interesting thing to ponder is if there might be a correlation between juvenile behavior and trading success.  Perhaps the most important traits for traders are balance, emotional intelligence, the ability and discipline to execute a plan successfully, and courage.  Some of the smartest people I've ever known have been really bad traders, whereas I've known very successful ones who don't exhibit outward signs of extra intelligence. 

Newton Linchen adds:

This is a great issue.  How many times we sit and shout "why oh why didn't I trade the way I said (plan)?"  This happens despite our intelligence — one thing is to be able to "understand" or predict markets — other is to be able to translate this view into action.  Perhaps the best strategist is not the best fighter — and it's very unusual to see a strategist-fighter or fighter-strategist. 

Generals plan their moves at night, in the tents, but they send the soldiers to do the job the next day. 

GM Nigel Davies replies:

Even in a supposedly intellectual game like chess, character plays a much larger part than intelligence.  A major part of it is in whether someone can bring himself to falsify his ideas or instead uses what intelligence he has to justify them. 

Steve Ellison observes:

I suspect that practical intelligence (synonyms: business savvy, street smarts) is more important to trading success than the type of intelligence measured by IQ.  Ben Green, in the preface to Horse Tradin', noted that horse dealers had to know about many factors such as demand, climate, crops, and soils, but then went on to say:

For a big dealer in a central market to be successful he also had to acquire a keen understanding of human nature… None of the knowledge needed by a high-class horse and mule dealer could be learned from books or schools, and it would be well understood that these men were usually middle age or over. 

Last but not least, he had to be a man with a lot of nerve, who was willing to back his own judgment and that of his buyers and to face the risks involved in shipping, loading, and unloading (together with the possibility of various shipping diseases) that were a hazard of the business… It is easy to see that with money going out in both directions it took larger amounts of capital, accompanied by a good nerve and judgment, to be a successful central market dealer.