Intelligence

Forex Intelligence

If you were reading on the internet about trading, it would seem like the easiest thing to enter and earn money. It is true that it is commonly mentioned that only an estimated 5% of people make money, but somehow you as a person are assumed to fit within that 5% either because you are confident of your abilities or because some company has found that secret method which which will earn you lots of money.

In this section I shall suggest a more logical framework for understanding the qualities of the top 5% of traders that earn money in this field. The root quality is intelligence. A broad definition of intelligence is ´an ability to aquire knowledge and skills´. Implied in this is the presence of a memory and analytical ability but in our context, we shall focus on analytical ability. Analysis is a detailed examination of something in order to interpret or explain it. It is a necessary feature of the scientific method.

Analysis requires a mind that can rearrange ideas, take what has always been understood to be true and demonstrate that it is actually false. It requires that you can challenge what everyone else presupposes and explore avenues that no-one has thought about before. Analysis is not something that people with degrees necessarily have, and I have met people who have no qualifications and yet have more analytical ability in their little finger than I have in my whole body! It is not restricted to man or woman.

Currency trading is not like selling something in a shop. If you were a shop manager, your aim would be to buy goods cheaply and sell expensively and, assuming there is demand for your product and you have supply, plenty of money is to be made. However in currency trading, the actual ´demand´ for your product is low. What I mean is that the majority of people buying and selling currencies are not people going on holiday, or governments/companies wanting to transfer money from one country to another. The majority of people trading are traders. To follow the previous analogy, currency trading is like a whole street of shops where there is only one customer and the majority of the buying and selling of items goes between the shop managers. Consequently, the managers are not focusing on selling goods to a client, rather there is a competition between them, buying and selling to each other, trying to outwit each other as the price varies. Consequently, one has to ask what qualities does a manager need to outwit his fellow man? Probably two things, intelligence and knowledge.

Someone will say, ´but I have just learnt a really good trading method from someone and so why would I need to be intelligent?´The reason is because that trading method now has to be weighed and examined. It will have weaknesses and flaws and it requires sensitivity to detect them. Be very wary of people who come to you and say that they have a simple way of earning money in currency trading. If it was simple, then the trading companies would be making a loss and they most certainly are not!

Consequently, the logic follows that if only the top 5% of traders earn money, then it is probable that they are in the category of the top 5% intellectually. They need this level of intelligence to outwit their fellow man. According to Wikipedia, this means that a person should not even start thinking about trading unless they have an IQ of more than 125 (according to the MENSA standard).

Intelligence also contributes to trading on an emotional level. It has long been accepted that intelligent soldiers are more able to cope with shellshock than lesser intelligent people. This is because they are able to evaluate the processes that are taking place in their body and create coping mechanisms to survive. In a similar way, trading is emotionally traumatic and it is vital that these emotions become rationalised and dealt with.

Consequently, although intelligence is not the be all and end all of currency trading, yet it is a vital component and at this stage a person needs to really examine themselves to see if they have the capacity to profit from currency trading.