Friday, September 26, 2014

Interview With Ted Hayes, Ph.D., Part Three: Identifying Trading Talent

In Part One of this interview series, Dr. Ted Hayes talked about two drivers of elite performance.  In Part Two of the series, he spoke about some of the personality contributors to success and how those vary across one's development as a professional.  In this third and final portion, he talks about the implications of his research findings for the hiring of successful traders.

Brett Based on your research, if you were hiring a trader to manage your money, what is the one personality characteristic you'd most look for?  What is the one skill you would most emphasize in your search?

Ted Picking just one? Brett, this is tough, but overall the right talent development model would select for resilience and nurture conscientiousness. For a senior hire, emotional approach to risk is important and conversely at the junior level I’d be unsurprised to see the overly risk-taking crash — something men do routinely and women do not do. And I say that as a man, so, sorry guys!

BrettWhat do you think trading firms could do better in hiring successful traders?

Ted: First, do not try to develop a model to fit a senior trader, especially only one person. Second, think more about a talent model for a successful cohort in your firm maybe more at the junior or mid-level, because that’s who you want more of. Third, assess each hire and develop a talent plan to ensure that person gets the behavioral practice s/he needs. Normally in HR the saying goes that you hire for skills and fire for personality; knowing that, flip the equation - hire for potential and fire for lack of execution. Fourth and finally, trading firms should actively seek out coaches who can work with traders at multiple levels of development. 

Brett:  Of course, I have to ask the age-old question:  Do you think successful traders are made or born?  How much of performance is acquired skill and how much is inborn talent? 

Ted:   Until this year, the reigning model in the psychology of human performance was that high performance was a function of deliberate practice, which is intensive study over thousands of hours — the so-called “10,000 hour rule” — with expert feedback. And while deliberate practice is certainly conducive to high performance, very recent research shows that there is a sort of interaction in that those who already have a high level of talent (cognitive ability, personality, physical) are those who will benefit from deliberate practice. Not just anyone can become a ballerina or chess grand master or “super-trader” just by trying really hard for a long time. It’s a psychological case of the ‘rich getting richer,’ or, life is still unfair. But it’s not all unfair; for example, being really talented and lazy is a recipe for disaster. So the answer is that the potential for successful trading is “born” but the practice of trading mechanics is what makes for high performance. And when people don’t live up to potential after you’ve given them deliberate practice, separation is the fairest melancholy ending of all. 

Brett:  Thanks very much for participating in this interview.  What projects are you working on presently and what are some of the research areas you think are most promising? 

Ted:   Working with Zolio is rewarding because it’s a great educational opportunity for the participants as well as a trading performance data bonanza. It’s a very smart way for managers to select for results and not for a resume. While Zolio is in its early stages, I’d like to see a more of a playful approach to talent development, recognizing the dynamism of trading. Finally, than you, Brett, for interviewing me — I hope something we’ve discussed sparks interest out there among your reader, and I can’t wait until your new book comes out!


Ted has said a lot here.  He jokes about the HR saying that people are hired for their skills and fired for their personalities.  By flipping that and hiring for personality strengths, a firm can then see who is able to translate those qualities into performance.  That is one of the things I like most about Ted's work with Zolio:  it's a real-time simulation trading platform that provides feedback about personality and cognitive strengths and that offers continuous feedback to traders about their trading performance.  This accomplishes two things:  1) it accelerates a developing trader's learning curve; and 2) it helps traders--and the firms that hire them--see exactly how personality and cognitive strengths translate into promising trading performance.  (Zolio also would make a great playground for experienced traders to try out new trading strategies.)

In a broader sense, however, Zolio and Ted are building something even larger:  a growing database of personality strengths, cognitive abilities, and trading performance.  Over time, this is enabling Ted to unravel patterns of success.  For example, it might be the case that successful active daytraders display different patterns of strength than position traders or pairs traders.  The database will also uncover the strengths needed at various phases of a trader's development.  This is invaluable information both for traders and firms that hire them.

Finally, Ted discusses recent research that suggests that not all performance success can be attributed to hard work and practice.  Native talents count for a lot, as well.  We are not born as clean slates; from early in life, strengths manifest themselves.  Some people are highly social and interactive; others are highly analytical.  Some seem hard-wired for faster thinking grounded in pattern recognition; others display an early bent for slower, deeper thinking.  The challenge of performance is figuring out who we are and what we're good at and then finding a platform in which we can leverage those talents through deliberate practice to achieve meaningful success.  Thanks again to Ted for a most enlightening interview.   

Further Reading:  Making Peak Performance a Lifestyle