There is provocative evidence that video games can improve brain connectivity and hence fluid intelligence. Recent research has shown that this translates into better school performance for children, as well as multitasking skills. This is important, because it shows that quick, adaptive reasoning in one situation can build the capacity for similar capacities in other domains.
Discretionary trading is a great example of an activity that requires fluid intelligence. We can read and memorize information about markets until we have an encyclopedic database, but that does not cultivate the skill to reason and function in uncertain and rapidly changing markets. Pattern recognition is an important aspect of fluid intelligence: the ability to understand new situations based upon patterns experienced in similar situations.
We commonly hear that the best traders are not necessarily the ones with the highest IQs or the most college degrees. That is true to a point. Crystallized intelligence of the type tapped by standardized tests may be poor predictors of performance in fluid situations. When I taught full time in a medical school, a research finding that interested me was that medical school admission test scores predicted grades in medical school courses, but did not predict performance in clinical education, which focused on patient care.
That doesn't mean that intelligence is irrelevant to trading. It may well be that great traders are fluidly intelligent: they may not have the largest databases of information, but they are good at knowing what to do with the information they have. If this is the case, then more fundamental analysis and more technical analysis and more statistical analysis will not make someone a better trader. What will boost their trading performance is cultivating their fluid intelligence. This has important implications for the education and training of traders and portfolio managers.
Further Reading: A Fresh Vision of Trader Mentorship
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