Intelligence is not a prerequisite to becoming a good trader. On the contrary, being too smart may drag your trading down. Intelligence is likely to be overrated. Discipline, patience, knowledge, attention to detail, and creativity are more important than intelligence. However, you may have an advantage if you are smart and humble.
I have not seen much correlation between good trading and intelligence... many very intelligent people are bad traders... average intelligence is enough. Beyond that, emotional makeup is more important... anyone with average intelligence can learn to trade. It is not that difficult.
William Eckhart mentioned the above quote on page 127 of Jack Schwager's first book, Market Wizard. We think that sums it up pretty well!
Intelligence often leads to overconfidence or a desire to understand the markets. Overconfidence is bad for the trader:
Is overconfident type good for trading?
No, an overconfident personality type is not suitable for trading. Confidence is important, but overconfidence is deadly to your account. When combined with an inflated ego, it means there is a financial risk of ruining you in the markets.
This is what Morgan Housel wrote about the famous trader Jesse Livermore in his book The Psychology of Money:
After his huge loss in 1929, Livermore's confidence was overwhelmed, and he made bigger and bigger bets. He ended up in mounting debt, and eventually lost everything in the stock market...and eventually Livermore committed suicide.
If you’re not afraid of failure, you’ll eventually fail at trading. Of course, fear of failure can’t paralyze you, but fear of failure isn’t as bad as it is. Overconfidence blinds you to risk and makes you feel better than you are. Luck and randomness are much bigger factors in trading than most people realize. You need to be humble. The inevitable result is that you take on more risk than you should.
Overconfidence is bad because trading is about survival. Getting rich requires taking risks, but you need to survive to take advantage of the market. There is no point in wasting time looking for trading advantages if your account is losing.
