Having worked with highly skilled traders of financial markets at a variety of money management organizations, I’ve noticed one distinctive marker of success: the great traders leverage one or more great strengths in their personalities and in their information processing. Those strengths differ from one exemplary money manager to another, but in each case some distinctive strength is evident.
One portfolio manager, for example, is introverted and highly analytical. He works from an enclosed office that creates a quiet, distraction-free environment. His trading draws upon patterns in high frequency data not tracked by the vast majority of market participants. When those patterns appear, his software enters orders in the market, essentially eliminating any subjective elements from his decision-making. This automation frees him up to conduct new research for much of his day. By leveraging his analytical capacities and emotional self-control, he has created an approach to trading that has been successful for over a decade.
A second portfolio manager is quite different. He is quite extroverted and works on an open trading floor with a team of junior traders. He watches markets closely and continually communicates with market participants on the buy and sell sides. He is unusually skilled at distilling what others are thinking and feeling, particularly as markets are moving. He explains that his “edge” in trading is his ability to feel the fear and greed of others and exploit the biases in decision making that result from these emotions. For example, he detects unusual bearishness and risk-aversion among traders prior to a central bank meeting. When the meeting produces little surprise, he quickly takes the other side and accumulates a large position. By leveraging his social competencies, he also has crafted an approach to trading that has yielded long-term success.