This question was actually left as a comment to my What type of trading resources would help me read charts?Â post from yesterday.Â
Thank you for the fantastic site and all the time and effort you put into helping others.
My question is also aimed at gaining success, not about books but rather about myself. There must be some psychological side or mental abilities that make some better than others at trading. Perhaps Iâ€™m being naive but by common sense I would guess that someone which is good with numbers would do better than someone who is awful at math. What you support this notion? What about â€œgeeksâ€, people who can spend vast amount of time going over information, and in general are attracted to sciences; would you say they would make better traders than someone who likes to spend their time with people and play music?
This is a really interesting question. It’s one I don’t think anyone’s asked me before – at least not in this fashion. I’m glad for the opportunity to address the subject, and hopefully some others will take up the question as well, either on the own blogs or by commenting on this post.
Firstly, I think there are a lot of quantitatively orientedÂ people out there (call them geeks or whatever) who would bristle at the idea they don’t like spending time with people.
As for whether the left brain quant types or the right brained “social” types are better suited for trading, I don’t claim any psychological expertise or training, but I’ll tell you what my feeling is on the subject.
Yes, you need to be able to do some basicÂ arithmetic to figure out profits and losses, position size, and stuff like that. That isn’t terribly challenging math, though, and not really theÂ intent of the question.
I think this question comes in large part from the fact thatÂ most of trading is numbers. Prices. Volume. Returns. They’re all numbers. But that doesn’t mean only the math-literate can understand it. Quite the contrary.
OneÂ point I would make hereÂ is thatÂ price movements are very much products of a social environment. That means they are not inherently quantitative in nature. Yes. There are definitely instruments and relationships between instruments which are highly mathematical in nature. Options and other derivative instruments can be very complex.Â Price movements in the main, though,Â are the result of human decision making processes – many of which are emotionally driven, or at least influenced.
Understanding the drivers of price movement aside, pattern recognition is a major element of trading (see Brett Steenbarger’s post Implicit Learning and the Unattached Mind). When we trade we are basically looking to identify patterns in price movement which tend to repeat. Now granted this can be done in a complex fashion using quantitative methods. But it can also be done in a mainly visual fashion by looking at the charts and seeing the patterns which develop on them. It definitely doesn’t take a math geek to see a trend in place.
There areÂ certainly some skills needed for successful trading. I would not put them in the category of requiring a degree in math, physics,Â or statistics, though. The discipline to do the things your trading plan requires is one. The intention and drive to continue improving is another. I could list more, but there really isn’t much point. None of them require geekdom.
So for me the bottom line is that right brain types should not believe they are less able to succeed in the markets than left brain types. It’s all about finding the right niche and applying your own strengths and abilities to their optimal benefit.