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You are here: Home / Trading Lessons / There is No Correlation Between Intelligence and Trading

There is No Correlation Between Intelligence and Trading

February 23, 2015 by Kamlesh Langote 2 Comments

Many people assume that those who regularly make money in stock markets must be very clever. Or that you must be blessed with some intelligence to “make it big” in the markets.

This is a very wrong assumption as there is no correlation between intelligence and trading.

If clever or intelligent people were good traders, then all your classmates from school or college who were toppers or other clever people (like doctors, engineers etc) you meet in life would be excellent traders. That is certainly not the case.

Intelligent

 
On the other hand, a lot of ordinary people  have earned excellent returns by simply buying a stock and not doing anything for years or decades (Warren Buffet). While people with far shorter timeframes and wanting to “do something everyday” have lost a lot several times over.

In both cases, the returns or losses have nothing to do with the intelligence or lack of it. It is more a case of “cut your losses fast and let profits runs”. In case of long term investors, provided you have invested in a good stock (no intelligence required – common sense is enough) and have held on to something for years (not difficult), prices invariably catch up and you will be in profit. For traders, it becomes “follow the trend”, respect stoplosses and hold winners. Again no intelligence required.

Another example is of star traders in brokerage houses or in hedge funds. They all go through their ups and downs. When they are at the peaks, they are the toast of the media and articles are written about how they succeeded. It is when they go through severe drawdowns you realize that their previous winning streaks were just random events and they were at the right place and the right time and they traded in the direction of the trend. We tend to call this intelligence but if they were really clever, they should not have been affected by trend reversals but they too lose fortunes or fail to capitalise on the reverse trend.

http://www.vfmdirect.com

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Filed Under: Trading Lessons Tagged With: Trading, Trading Lessons

About Kamlesh Langote

Swing trader/ trend follower with focus on systems and risk management.

Comments

  1. Ramchandra Reddy says

    February 23, 2015 at 10:54 am

    Good observation Kamal, Even I used to think in the same way, one need to be a intelligent to be a successful trader.
    Once I started trading I came to know all I need is Right Strategy suitable for me, money management and Discipline.

    Reply
  2. Parag Gupte says

    March 11, 2015 at 11:04 am

    After paying huge fine for trying various technicals, Swing trade is the best and Discipline is the key. Thanks for you website and various articles.

    Reply

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