well? are traders smart?

[meanreversion]

It's extremely easy to make heckva lot of money if you take stupid risks. Thus this means there are a lot of successful stupid traders - either they're too stupid to notice the risks, or stupid enough to take them anyway.

That latter is not necessarily stupid of course (especially if it's only your money if you earn out of it) but it usually is!

There's a similar reasoning to this in "Way of the Turtle". Let's assume 10% of traders are "good" and the rest are "average". Immediately the average traders outnumber the good traders 9 to 1, thus there is a strong likelihood that if you meet someone with a good track record, they are a lucky average trader. In fact, someone with a poor track record could simply be an unlucky good trader, and so on.

A similar idea is covered in "Fooled by Randomness", namely that due to the very high number of participants in trading, some very dumb people will make a lot of money.

 

[Hotch]

It's extremely easy to make heckva lot of money if you take stupid risks. Thus this means there are a lot of successful stupid traders - either they're too stupid to notice the risks, or stupid enough to take them anyway.

That latter is not necessarily stupid of course (especially if it's only your money if you earn out of it) but it usually is!

It's also extremely easy to lose a "heckva lot". You're not actually going to attempt to argue that those making less are more intelligent because they're taking less risk are you?

 

[0007]

Truly superior traders are those who use their superior judgment to avoid those situations where they might have to use their superior skills.

Isn't that also how truly superior aviators stay alive? And isn't there also an assessment called "effective intelligence" which cuts out the auto-assumption that high academic ability equates to high practical achievement ?

 

[new_trader]

when it comes to trading,emotional smartness is more important than intellectual smartness.

E.Q Vs I.Q

You are making a bold statement suggesting that one is more important than the other! You could argue forever and a day about how to measure I.Q & E.Q and whether such tests are actually even valid.

You really have to answer the question: "How do you measure/define 'smart'? " before even thinking about asking "Are traders smart".

 

[scose-no-doubt]

Personally, I'd be far more impressed by an arb trade that yielded 5k than I would by a directional punt based on historical crossovers obs that resulted in a holding a trend trade and netting 50k... but then I'm a geek.

Does that make me an idiot?

 

[traderman1]

On the other hand I can think of at least 7 traders that comfortably make 20-30k a month. All of them scruffy, disorganised, reckless to a degree. In fact some of them not even that interested in trading. One guy i know was a bit of a hippie and only got into trading to pay off his student loan quickly then go and back back around the world (he is still trading 7 years on though).

These guys all had one thing in common to, they were all fearless and very aggressive. They all traded a variety of styles but if they thought they had found an edge to any degree they were the first people banging on the boss's door asking for more size to trade, if a suprising news release came out they were in the market with full size instantly and would let the position run and run, they never stopped and thought about the trade they just did it.

Interesting. My experience is the opposite.
The fearless and aggressive traders inevitably blew themselves up.
The measured and risk-aware traders (as opposed to risk-averse traders) lasted longer and gradually scaled up and up in size over time.

 

[Shakone]

How will the answer to the question help you? Is it that you're not smart and you want to make an excuse for failure at trading, or that you are smart and think you're destined for success, or that you're a successful trader and want the ego boost of being thought of as smart? I don't think it really matters much. Its a skill. As with all skills, some people pick it up quicker than others, some people never pick it up to a good standard. There are unlikely to be any direct relationships of you are a trader so then you must be...etc.

 

[iota]

I know three traders. One is an arcade, the other prop, the other for a large American bank.
None of them are wildly intelligent, but you'd be hard put to pull the wool over their eyes about much.

The only common trait is aggression.
The bank trader is overwhelmingly aggressive and I've watched him beat the **** out of someone more than once and enjoys constantly ridiculing the junior traders that work under him.
The prop trader would have quite happily fit in to the category of thug when we were younger.
The arcade guy is the only one you can spend any time with without being worn down.

 

[HowardCohodas]

Isn't that also how truly superior aviators stay alive? And isn't there also an assessment called "effective intelligence" which cuts out the auto-assumption that high academic ability equates to high practical achievement ?

You caught me. I replaced pilots with traders from the original quote. It's still true.

High academic achievement does not equate to effective intelligence. You don't need a study to show that, just attending university provides all the proof you need.

However, there are the remarkable few who have both.

 

[Pi3141]

If you define smart as *academically* smart then no, they don't necessarily make the best traders. Imo being smart has more to do with having a coherent mind and sound reasoning.

This reminds me of a scene in Million Dollar Traders (BBC tv series) where Simon (the IT guy) is losing money on his trade. Anton (the manager) asks him what his plan of action is, to which Simon replies 'I'll wait for an hour and if they fall to 700 I'll sell them (current price is 727). Anton gets angry at this point and says 'well if you're going to sell them at 700 in an hour then sell them now at 727. Seriously, think about what you're saying, it's unbelievable!'.

 

[Chartsy]

If you define smart as *academically* smart then no, they don't necessarily make the best traders. Imo being smart has more to do with having a coherent mind and sound reasoning.

This reminds me of a scene in Million Dollar Traders (BBC tv series) where Simon (the IT guy) is losing money on his trade. Anton (the manager) asks him what his plan of action is, to which Simon replies 'I'll wait for an hour and if they fall to 700 I'll sell them (current price is 727). Anton gets angry at this point and says 'well if you're going to sell them at 700 in an hour then sell them now at 727. Seriously, think about what you're saying, it's unbelievable!'.

Yes but he straight A economics/maths student actually made the most profit out of them all

 

[HowardCohodas]

Yes but he straight A economics/maths student actually made the most profit out of them all

That's because maths really believe.

 

[amit1986]

Personally, I'd be far more impressed by an arb trade that yielded 5k than I would by a directional punt based on historical crossovers obs that resulted in a holding a trend trade and netting 50k... but then I'm a geek.

To my utter surprise, I actually agree with you.

 

[JRP2891]

Personally, I'd be far more impressed by an arb trade that yielded 5k than I would by a directional punt based on historical crossovers obs that resulted in a holding a trend trade and netting 50k... but then I'm a geek.

Does that make me an idiot?

I wouldn't say an idiot, but maybe you're in trading for a reason different to myself. I'd rather trade a simple method and make 50k, than an intellectually 'superior' method which only nets 5k. From what you've said you might want to read up on egoless trading.

 

[amit1986]

I wouldn't say an idiot, but maybe you're in trading for a reason different to myself. I'd rather trade a simple method and make 50k, than an intellectually 'superior' method which only nets 5k. From what you've said you might want to read up on egoless trading.

What would you say about hedge funds that aim to outperform the market? A lot of newbie traders likely made a lot of money from simply buying any U.S. index futures contract last year and are holding onto it now. But that sort of strategy won't work all the time. Instead, a veteran arb trader at a reputable hedge fund who is able to arb any sort of market environment can make it consistently with his/her edge. That, in my opinion, is a skill worthy of commendation.

 

[JRP2891]

What would you say about hedge funds that aim to outperform the market? A lot of newbie traders likely made a lot of money from simply buying any U.S. index futures contract last year and are holding onto it now. But that sort of strategy won't work all the time. Instead, a veteran arb trader at a reputable hedge fund who is able to arb any sort of market environment can make it consistently with his/her edge. That, in my opinion, is a skill worthy of commendation.

I'm not referring to either a newbie trend trader or a veteran arb trader, only simple and larger returns vs. complex and smaller returns. An easy choice to make in my opinion if both strategies have a positive expectancy and are executed consistently.

 

[amit1986]

I'm not referring to either a newbie trend trader or a veteran arb trader, only simple and larger returns vs. complex and smaller returns. An easy choice to make in my opinion if both strategies have a positive expectancy and are executed consistently.

Yes, given there was a simple and easy way to make large returns, I would agree with you. But, this is simply not the case. If it was, then the smart money would take advantage of it until the retail trader is left out in the cold.

What scose said is that he's more impressed at the arb trader because that is pure skill that can be utilized consistently. Any nutcase can buy and hold and likely generate good returns. But that nutcase will likely blow his/her account in the long run.

Thus, the skillful arb trade is more impressive. The whole "I'd rather make $1 on a million trades as opposed to a million dollars on one trade".

But given your assumptions only, then yes, I agree with you. :clap:

 

[JRP2891]

Yes, given there was a simple and easy way to make large returns, I would agree with you. But, this is simply not the case. If it was, then the smart money would take advantage of it until the retail trader is left out in the cold.

Those large-returning simple methods do exist, however they're pschologically difficult to pull off. I should state, simple doesn't equal easy.

 

[montmorencyt2w]

From what you've said you might want to read up on egoless trading.

Interesting. I had not come across that expression before, but it does remind me of one from the IT world I used to inhabit, namely "egoless programming". A lot of programming gurus are a little bit like those traders who are more keen on being "right" than on being generally effective. In the (non-egoless) programming world, this might consist of writing smart, but very obscure code that no-one but themselves understood ('cos they have to prove they are the bestest), so no point in documenting it or commenting it, naturally.

It also means that he is the guy they have to call in when it all goes wrong. Remarkably, some people get away with this for years (or used to). Even more remarkably, a lot of people don't see through them and are impressed by them.

 

[megamuel]

In my opinion traders are smart. Starting from the bottom, some of the dumbest people I know don't know what 'trading', 'markets', 'shares' etc. are. More intelligent people know about these things but wouldn't have a clue how to go about trading. And then some of the smartest people I've met/talked to know about trading and maybe even can do it profitably. Then there is professional traders, I've only met a few but they have all been incredibly intelligent and they know it. They seem different to other people. Not only intelligent but also very streetwise and on the ball. However, I am sure one of the dumb people could be shown a rule based system and trade it and make money. E.g. Arabian... Just kidding. But the dumb people could never work it out for themselves.... This is my main problem. I am thick as pig shizzle x