Saturday, February 28, 2015

Reflections on What is a Trader

Victor Niederhoffer recently posted on the topic of "What is a Trader?" and then announced a contest for the best short essay on that topic.  The winner will receive $1500 and, if my experience with a Niederhoffer contest many years ago holds true, something much more valuable.  It was my winning of Niederhoffer and Kenner's contest on finding the best stock market indicator that led to a visit to Victor's trading operation and opened the door to a whole new way to view markets.  (That winning indicator was a correlation of the average beats per minute of popular music and the level of the Dow Jones Industrial Average).

As the quote above captures, there is an entrepreneurial and competitive essence to trading.  (Props to Henri and the Best Trading Tweets site for the card.)  Many are drawn to trading because of its independent nature:  you rely on your judgment, you work for yourself, and your rewards are a direct expression of your talents and skills.  It is in that spirit that I offer the following perspective on "What is a Trader":

I would define a trader as "an intellectual entrepreneur: one who generates ideas and manages their risk and reward within a competitive financial marketplace."  This is why the term "speculator" is an accurate one.  The derivation of "speculator" is from the Latin meaning "contemplation, observation" and by the mid 15th century came to mean "pursuit of the truth by means of thinking".  Ayn Rand regarded the trader as an ideal, as one who offers value for value, rather than living off the efforts of others.  The trader also represents Rand's ideal of man as a thinking animal:  one who relies on his/her perception in pursuit of the truth and is willing to accept the risks of that reliance to achieve superior returns.   

At its best, trading is an exercise in what makes us distinctively human:  the ability to perceive reality and plan and execute our actions based upon that perception.  Trading is not about making money, though that is a desired outcome; trading is also not about technical patterns or fundamental relationships.  At its root, trading is entrepreneurship of the mind, one of the purest forms of intellectual competition in some of the most competitive global arenas.

Further Reading:  Trading as Entrepreneurship