am/FX: Rabbit Hole #7 – Common Traits of Top Traders

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Long TYZ2 @ 112-17

Stop loss 111-15

Short AUDUSD @ 0.6711

Stop loss 0.6811

Take profit 0.6555

November 29, 2022

Common Traits of Top Traders

An Alpha Trader follow-up

This is Rabbit Hole #7. The Rabbit Hole Series offers deep dives into random trading and macro topics that fascinate me. In today’s note, I look at the results of my recent survey into the traits that differentiate experienced professional traders from noobs.

A few weeks ago, I put out a survey to see if successful traders have any common qualities. Surveys are generally boring and annoying to me, so I try not to send them out too often. Feedback on this particular survey was unusually strong and positive. Most of my surveys get around 250 responses and this one got ~600.

The cool thing to me is that many of the traders I know well and have a deep respect for pinged me after to tell me they completed the survey. The results show that many experienced traders completed the questionnaire, along with many other traders of various skill levels.

Before I show you the traits that differentiate successful traders from inexperienced and not-yet successful traders, let me provide a couple of excerpts from Alpha Trader for context. The survey I constructed was based on analysis from the early chapters of Alpha Trader where I attempted to dissect what makes a successful trader. This study was meant to complement my findings in the book, and hopefully add new insights.

In my book, I study success outside trading (in fields like academics, sports, and life outcomes) and research on success in trading to come up with this equation for trading success:

Rational + intelligent + skilled + conscientious + calibrated confidence


I then offer the following clarification (excerpted from Alpha Trader):

Note my equation for trading success excludes some traits that are important but not critical to trading success. I did not include risk appetite, for example. People at each end of the risk-taking continuum (extremely risk averse or highly risk seeking) might underperform those in the middle, but risk appetite is not an important character trait in the literature on trading performance.

Furthermore, risk tolerance can be dialed up or down fairly easily with a simple set of rules. I have seen traders at every point on the risk-taking spectrum succeed.

Before the year 2000 or so, IQ was less important in trading because trading was more skill-based and less quantitative. Now, a higher level of quantitative intelligence is required although I would argue that Wall Street currently overvalues IQ and academics, and does not focus enough on grit, street smarts and fire in the belly.

My equation leaves out many positive attributes that most certainly make for better traders. It does not include positive attitude or ability to handle stress, for example. These are useful but not critical attributes when it comes to trading success. There are plenty of grumpy, stressed out traders that still make money. Sure, that’s not ideal (and certainly does not meet my personal definition of success), but only the indispensable traits are in the equation. Many other attributes will help you succeed in trading but the formula I laid out is the mashed potatoes—everything else is gravy.

On at least one of those viewpoints, the survey shows I was wrong. But I’ll get to that in a bit. First, here’s the basic info on the traders that completed the survey. Total sample was 589. The first three questions were used to bucket traders into groups by success / experience. Here are the results:

Impressive number of traders with 20+ years of experience on my distro! I thought that was cool.

Again, decent representation from professional traders. And a lot of new traders, of course. Next, profitability:

And I always enjoy throwing in this last question as a study in overconfidence bias (see next chart). Almost everyone thinks they are average, or better than average, as usual! Fun. This overconfidence bias also appears in the main data as there are very few low rankings on the scales and many, many more 7’s than you would expect in a normal distribution. The data is somewhat normally distributed, but around a mean of 7, not 5.

Once all the data was collected, Justin and I worked to split the cohort into four groups defined by experience and profitability. We called the groups: Beginner, Trader, Pro, and Veteran (ascending order of combined experience and profitability). The output I was most excited to see was the traits where there are large differences between the cohorts. The absolute responses were going to be mostly meaningless to me; I figured the relative traits comparing noobs to pros would offer the most interesting takeaways.

There were some results as expected, and some surprises. I am going to show the results in a graph first, then the data is provided in a table afterward, in case you want to see it more clearly and specifically.

Survey results

Takeaways (focus on the gray bars in the chart, which show the difference between the blue and red lines):

  • Number one divergent trait is: Ability to handle stress. I find that interesting as it contradicts what I wrote in Alpha Trader. I suppose handling stress is one of my greatest strengths, if I think about it. I like stress. I’m going to write “Rabbit Hole #8: How Traders Cope with Stress” as a follow-up to today’s piece.
  • Willpower, quantitative skills, confidence, rationality, and decisiveness are the five other areas where the Veterans greatly exceed the Beginners. Confidence is critical and overconfidence is deadly.
  • Risk appetite is about the same for traders of all levels. This is consistent with what I wrote in Alpha Trader. You can succeed in trading with any level of risk appetite. You just have to manage yourself differently and develop systems and processes to regulate or increase your risk. And know yourself.
  • New traders tend to be more contrarian than experienced traders. This is a lesson I learned early on. I always wanted to be contrarian when I started because my ego loved it when I made money while everyone else was losing. I wanted to be right when everyone else was wrong. Now, I just want to make money. Reflexive contrarians are not good traders because they miss every trend. Traders who focus too much on market sentiment are bearish all the way up and bullish all the way down. Good traders can fade or go with trends.
  • You can be emotional or robotic and succeed in trading. It doesn’t matter, as long as you are aware of your emotions and make sure they don’t make you irrational.
  • The direction of the spread of the data from cohort to cohort was consistent, which gives me confidence this is a meaningful result. That is: “beginners” score lower than “traders” who score lower than “pros” who score lower than “veterans” on the important traits. That is, the lines in the graph don’t criss-cross very much. This is a feature of good data and meaningful research results.

Overall, the results of the survey provide more insight into the traits and characteristics that separate professional traders from beginners. I hope you found it useful and informative. Here is the data in table form.

To wrap things up… If you have read Alpha Trader, you might remember the questionnaire from Chapter 1. Here is the profile of the most least and most successful traders in my survey, structured the same way as it’s displayed in the book:

Average traits of least and most successful traders

(if both the same, box is green)

The last question I asked was: Who is the one person on Twitter you find most useful? (please provide Twitter handle if you can). am/FX readers skew towards nice, so many put my Twitter handle in there. Other than me, here are the handles that came up at least five times:

Most useful Twitter handles, according to survey respondents

Go Alf!

Final Thoughts

It is Tuesday and therefore the Spectra Momentum and Positioning Report appears just below.

The USD is wildly bid and then hammered and then wildly bid. Tomorrow is a big day!

Have a mapped-out day.

good luck ⇅ be nimble

The Spectra FX Positioning and Momentum Report

This current narrative is weak US PMIs, weak oil prices, and confusion over how protests in China might impact the reopening and end of COVID-zero stories. The massive CTA reversal out of USD long positions appears to be complete and further USD shorts or risky asset longs will require some new information or a big price breakout. Monday’s corporate month-end USD demand (28NOV) further stabilized the dollar and modestly improved the short-term technical outlook.

Here are this week’s positioning and momentum scores:

G10 FX Positioning and Momentum


Six Takeaways

1.   This is the first release of CFTC data since November 15 (due to Thanksgiving). The CFTC bought NZD and JPY and sold USD and CHF.

2.   Overall positioning is light, and volumes are 30% below the September 2022 peak.

3.   USD momentum and CAD momentum are both down as there is a bit of a “sell North America” vibe.

4.   JPY and CAD momentum changes are notable. They are moving in opposite directions vs. the USD. CAD momentum is negative and JPY momentum is positive. See “FX Momentum” bar chart on previous page. Speculative interest in cross/JPY has been low this year but that could be changing.

5.   EURUSD’s second failure at the 200-day moving average and the mirror image in the DXY has killed USD selling momentum. The market has tried to take out the key MA twice and cannot muster the energy.

DXY nice bounce of the 200-day MA

EURUSD cutting up the 200-day MA

6.   JPY risk reversals favor USDJPY puts again but remain in somewhat familiar ranges. The non-signal from USDCAD options discussed in last week’s positioning report was a good indicator and showed the market was not positioned for CAD weakness. Surprisingly, we see the same thing this week. Even as USDCAD rips higher, the market is watching from the sidelines and chomping on popcorn, not buying CAD puts. This leaves yet more room for CAD weakness.

During the September rally in USDCAD, specs aggressively bought topside, pushing the risky from +1.5 to +2.5 in a few short days. The risky then fizzled back to +1.0 on the big USD reversal and remains low. It’s notable that the options market has not responded to the move in spot. Here is the chart.

USDCAD 1-month 25-delta risk reversal

Anecdotes and Observations

1.   Another week, another extrapolation from The Economist.

This time, they suggest that the worst is yet to come for Europe and “the world is leaving Europe behind.” I am not bullish Europe, but it’s hard to get excited about their bearish logic. The sentiments in the magazine article regurgitate the many-months-old narrative:

Even as the energy crisis rages, the war has exposed a vulnerability in Europe’s business model. Too many of Europe’s industrial firms, especially German ones, have relied on abundant energy inputs from Russia. Plenty of companies have also become more dependent on another autocracy, China, as an end market. The prospect of severed relations with Russia, structurally higher costs and a decoupling of the West and China has meant a reckoning in many boardrooms.

As a reverse indicator, this would be buy EURUSD, buy VGK, or buy EWG. It’s easy to hate all three of those trades, but that might be why they work! Everyone probably hates them. Remember the optimal time horizon for trades that fade The Economist is six to twelve months.

2.   Another week, another crypto bankruptcy. Much like it did with dotcom in 2001, contagion from fraud and insolvency is metastatizing slowwwwwwwly through the crypto ecosystem. I suppose the good news is that these firms are all so poorly managed that they have no assets to sell (!) and so contagion to crypto prices has been minimal of late. Apathy will be the hallmark of the crypto bottom, not fear.

3.   Bearish equity zeal on Twitter and Substack has dissipated. The Crashanistas have gone into hiding as SPX consolidates and VIX wanes.

4.   Views on China reopening seem more dependent on people’s priors than on any particular insight or expertise. Nobody knows what’s going to happen with COVID in China.

That’s it for this week! Thanks for reading.

World map made with Nando’s Sauces. Some inaccuracies due to condimental drift.

And also this:

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