Emotional Intelligence v Intellectual Intelligence in trading.

What is more important for success as a trader - A high level of Intellectual Intelligence, or a high level of Emotional Intelligence?

Warren Buffett once said; "Success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing".

On my linkedin group (Trader, Trading & Risk Psychology) a very interesting debate has been raging about which sort of intelligence is most useful when trading. The responses have been extremely interesting and illuminating. 

Very briefly emotional intelligence can be defined as an ability, skill or a self-perceived ability to identify, assess, and control the emotions of oneself, of others, and of groups. 

Broadly speaking intellectual intelligence can be defined an academic or cognitive intelligence. Resing and Drenth (2007) use the following definition: "The whole of cognitive or intellectual abilities required to obtain knowledge, and to use that knowledge in a good way to solve problems that have a well described goal and structure."

To follow the discussion or participate, click this link.

You can join the LinkedIn group 'Trader, Trading & Risk Psychology' by clicking here and hitting 'Join Group' 

How do you see your trading job?

The beginning of real success as a trader starts with knowing yourself.

"Know yourself. - You can't improve on something you don't understand".

Vince Lombardi Leadership Rule#1

One common trait amongst nearly all successful traders is that they have a very high understanding of who they are and how they operate. As an example, leading traders realise that they are not in control of the market; they tend to view the market almost as a force of nature without a personality, and with no agendas, the only thing they can do is control their own actions, activities and emotions. In other words they understand the way they work, what drives them and their performance, how their mind operates, and their emotions. Not necessarily on a conscious level, but nonetheless they have an understanding of how it all works.  

As an analogy considers a competitive yachtsman, he has to take account of the conditions of the sea and the winds; however, it is his own actions and decisions that will deem how successful he is. He can not blame the sea or the wind for failure, he has to put all his efforts in to his sailing, making correct decisions and performing the correct actions.

The top traders do not look to blame others when things do not go to plan, they take full responsibility, they understand that no one is infallible and they too will make mistakes. However, they take full responsibility for their own actions, they do not look to blame others, they seek to understand what they did wrong, and they constantly try and learn from their mistakes.

I will finish with one more quote, which I hope emphasises the point - It is from 'Sun Tzu' Chinese General, military strategist, and author of The Art of War: ", It is said that if you know your enemies and know yourself, you will not be imperilled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperilled in every single battle".

To be really successful as a trader you need to fully understand both yourself and the market, not just the market.

This Blog is changing.

CHANGE OF FOCUS AND NATURE.

This blog will now focus almost exclusively on issues and matters related to Trader, Trading, Market  & Risk Psychology. I will try and post articles and items as regularly as I can on these subjects.

Readers can also join a 'Linkedin Group' I manage called, 'Trader, Trading & Risk Psychology'.The aim of the group is to be a forum for thoughts, reflections, opinions, views, and discussions on matters related to trader/investor psychology. – Including:

• Trader & Market Psychology.

• Trader Performance & Development.

• Behavioural Finance.

• The Psychology of Risk.

• The Psychology behind Technical Analysis.

And other related topics.

Hit the Linked-in image on the right hand side of this page to go to the group, or go to link : http://www.linkedin.com/groups/Trader-Trading-Risk-Psychology-3863963?mostPopular=&gid=3863963

Then hit 'Join Group' to become a member.

Warm regards

Steve

Confirmation Bias - A pernicious threat to your own trading.

Do you recoil in anger at a news story, item, article or blog that differs strongly in opinion to your market view or position?

Do you perhaps find that when a blog has an opposing outlook to you on the market, you stop visiting it?

If the headline to an article is the complete opposite of what you think, do you blatantly disagree with it, even without reading it?

These are all signs of ‘confirmation bias’; a bias which poses a serious risk to your trading success.

When traders have a view, hypothesis or opinion about market direction, there is a danger this can become deeply entrenched. The placing of trades and strategies concurrent with this view deepens this attachment, as do mixing and sharing this view or opinion, with other like-minded individuals. The discussions will veer towards confirming with each other how right you are, and any opposing views opinions will be quickly dismissed. Typically then what happens you pick up on evidence that supports your hypothesis and ruthlessly ignore or dismiss any evidence that opposes it, even without giving it due consideration, often without even reading it or listening to it.

Over the years I have seen the 'confirmation bias' literally destroy traders. I myself have been victim to it, though thankfully without disastrous consequences and before it became too entrenched. I think humans probably have a natural tendency towards it, perhaps linked to a deep-rooted behavioural trait or habit that is natural to us in some form and which served its purpose in ensuring our survival when we roamed the ancient open plains, savannahs and jungles.

My own way of dealing with it, or overcoming it, was to be rigorous and thorough with my analysis and research. I would make sure I tried to visit, read and listen to opposing views. On many occasions, where I had a strong technical analysis opinion, or had seen some research or data which lead me in one direction, I would seek to disprove it, deliberately looking for flaws in my arguments or conclusions (sometimes the market would do the work for you). - As these flaws or holes would disappear or not stand up, my conviction would grow that I was on the right path, though I would always try and keep an open mind. - Even then I was still prone to lapses, but I think you have accept that it important to try and strike a balance between having a degree of self-belief and conviction and questioning that belief, otherwise you risk ending up with no view and never taking a risk.

It would be interesting to hear other people's opinions, thoughts and experiences on this.

Confusion on the - AUDUSD

I apologies if my postings of late have been ambiguous.... last week, I was leaning bearishly on the AUDUSD, then I started turning Bullish,,, now -- well ??? hmmm

I think we may be getting close to a resolution.... today's turn lower was very ugly..... It was ironic that the highs of the last few days returned to the neckline of a possible Head & Shoulders neckline. That is something to be considered... Today's low, was the top of the Bullish Falling Wedge I highlighted the other day... this 1.06 - 1.075 area seems to be the battle-ground, I'd allow 50 ticks lower on the downside. I think this may be crucial crucial  battle-lines, which determine major direction beyond that...