This past week I was reading Super Freakonomics, a new book out by Steven Levitt and Stephen Dubner. I ran across a section of the book I thought applies to the nature or nurture of trading. Are traders born or made?
For the sake of brevity, I’m going to summarize Levitt’s statements and conclusions found on pages 59 – 62.
If you were to take the birthdays of the players of a world-class soccer team you will find that there is a higher concentration of birthdays in the first 3 months of the year. A study on British soccer found that half of the players were born in the first 3 months of the year and the other half spread out over the latter 9 months. A study of German elite players yielded findings that showed 52 players being born between January and March as opposed to only 4 being born between October and December. The data is curious. Levitt goes on to explain that European youth leagues use December 31 as a cut off date in order to divide children in to competitive age groups. The premise is that those players born in the first part of the year have a developmental advantage over those born later in the year. When coaches are choosing which 7 year olds to play, the bigger boys are given playing time, instruction, and encouragement. It creates a yearly cycle that continues throughout their whole lives so that by the time they reach the elite leagues we find that the majority of players were born in the first 3 months of the year. Major League baseball players are also “victim” to the time of the year they were born. In the United States, most youth leagues for baseball have a cut off date of July 31 so you will find that a boy born in August has a 50% greater chance of playing in the major leagues than a boy born in July. These types of statistics can’t be based on nature or “raw” talent, but on practice, experience, and instruction time. The author makes a great point when he says, “Unless you are a big, big believer in astrology, it is hard to argue that someone is 50 percent better at hitting a big-league curveball simply because he is a Leo rather than a Cancer.
In light of this data, the author searched further to see if the concept of “raw talent” was legitimate. His journey led him to K. Anders Ericsson, a professor at Florida State University. Ericsson is a psychologist that uses empirical research to study the notion of natural talent. This is what Ericsson had to say on this matter, “A lot of people believe there are some inherent limits they were born with, but there is surprisingly little hard evidence that anyone could attain any kind of exceptional performance without spending a lot of time perfecting it. Or, put another way, expert performers-whether soccer or piano playing, surgery or computer programming-are nearly always made, not born.” Ericsson went on to say that mastery comes from what he calls “deliberate practice.” His definition of “deliberate practice” entails three key elements:
1. Setting specific goals
2. Obtaining immediate feedback
3. Concentrating as much on technique as on outcome
Trading is no different than soccer, baseball, piano playing or surgery. Success in trading is not based on raw talent, but on deliberate practice. Traders are not born, they are almost always made.
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