Your trading network may determine your trading success

I had the opportunity recently to meet with an accounting professor at a UK university.

Wait!

Before you let her primary specialization turn you away, I should say that this particular professor has been doing a fair bit of research into the impact of networks on individual performance. One of her papers looks at securities analysts in particular, but she has also done research into other types of performers, like corporate CEOs. The bottom line is that the quality of one's network is a major explanatory factor in how well an individual performs in their defined role.

Currensee is, at its core, a network of traders. The linkage is clear.

Note, however, that I specifically used the term "quality" and not "size". A massive network isn't necessarily a valuable one. That means you probably aren't doing yourself a whole lot of good "friending" everyone you come across, or who sends you an invitation. This doesn't just apply to trading, by the way. (Are all your Facebook "friends" really of any meaningful value to you beyond the vanity of the number?)

The value of a network comes down to the value of the information which comes to you through that network. Again, note that I did not use the term "quantity" here either. We are all bombarded with vast amounts of information each day. The key to success in trading, as in life, is to get the right information at the right time.

In academia the word "informed" has come to be used to refer to consistently profitable traders or investors. Basically, the idea there is that after you factor out simple luck in terms of explaining performance you have some set of market participants who make money based on their own decision-making. These participants have some kind of informational advantage over the losing traders and investors.

Makes sense, right?

The question, though, is do these "informed" folks have more information? Or do they have better information? In some cases it might be the former. In other cases it might be the latter.

Now for the real twist.

Is that more/better information a function of actual information transmission from one's network and/or information sources? Or is it a function of better information processing abilities by the individual – meaning they create through their analysis new information that is not available to others?

That latter question opens up an ability debate, one which could then be extended to the nature vs. nurture discussion made quite famous by the film Trading Places as well as by Richard Dennis and his Turtles (I actually met a new batch of Turtles recently). But I digress.

The research suggests that ability is less important than one's network. That would imply the key to trading success could be primarily a function of developing a strong network rather than in trying to figure out some holy grail trading system.

So what do you think? Are winning traders better at processing information? Or are they receiving better information from their networks?

 

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One thought on “Your trading network may determine your trading success

  1. avatar

    María

    Great article. My opinion is that is a combination of both. They are better processing the information they receive by their networks and they are better managing their money.

    Reply

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