Monday, August 11, 2014

Elite Performance in Chess and Trading

Many a trading firm looks for a history of athletic participation in the search for trading talent.  While athletics, as performance domains, share some characteristics with portfolio management and trading, the overlap is far from perfect.  Both athletics and trading are competitive activities, and both require practice and disciplined performance.  It is not surprising that the personalities that gravitate to competitive sports are also drawn to market competition.

What differentiate athletics and trading, however, are the requisite cognitive skills.  The pattern recognition and deep analyses typical of short-term traders and investors are not necessarily skills required of sprinters, weightlifters, baseball outfielders, or football linemen.  Many sports require rapid hand-eye coordination; not necessarily explicit decision-making under conditions of risk or uncertainty.  Across many trading firms and types of trading, I have not found a strong correlation between athletic achievement and trading success.

So where are tomorrow's trading champions to be found?  I would argue that chess is a far better breeding ground for trading talent than sports.  If you take a look at the characteristics that distinguish successful chess players, you'll see an uncanny overlap with the qualities typically attributed to successful traders.  Most important, there is a sizable overlap in the cognitive skills required for mastery of chess and trading:  the blending of tactical and strategic thinking; the role of deliberate practice and studying past games (markets) to foster performance-based learning; the ability to quickly size up complex patterns of risk and opportunity--all are part of both fields.

It's not surprising that Wall St. firms have shown an interest in elite chess players and that several successful money managers have cut their teeth on the chessboard.   Indeed, thinking of trading days as chess games, with their own openings and endgames, might inspire strategies of trading education that mirror the training of chess champions.  And development as a chess player might just provide the gymnasium for exercising the cognitive skills needed for success in financial markets.

Further Reading:  Chess, Tai Chi, and Inner Learning