Women Are Better Traders Than Men

Women are better traders than men because they are less over-confident. It is also possible that they benefit from superior abilities to predict and explain the behaviour of others.

There is a good amount of evidence that female non-professional traders outperform male non-professional traders.

three women smiling while sitting on stairs
Photo by Machol Butler on Pexels.com

I do not mean to imply that female professional traders under-perform male professional traders.  I have not seen a lot of data one way or the other on that point, though apparently there are some indications the female-run hedge funds also outperform.

There are a few interesting reasons as for why this might be.  One is that females are better at “Theory of Mind” than males.  Theory of Mind is the label for how we predict and explain the behaviour of others.  One would expect then that since much of market out-performance is driven by predicting the behaviour of other market participants, that strong Theory of Mind would be possessed by better traders.  And this indeed is what the data show.  Since I don’t believe that anyone has explained Theory of Mind to traders, I also devote an early chapter of the book to that topic.

woman wearing pink collared half sleeved top
Photo by Moose Photos on Pexels.com

The other interesting possibility relates to confidence.  There is a curse of over-confidence that afflicts at least non-professional traders.  They fall in love with their own judgment.  But it is only a fickle love.  In three months, they will be in love with a new idea and a new stock.  This makes traders commit the cardinal error of over-trading.  It is well-known that “buy-and-hold” outperforms as a style over the long term.  The fact is though that many retail trading accounts turn over several times in the course of a year.

It turns out that females are not less over-confident than males in one sense: they also form beliefs which they assert as confidently.  However, it seems that female traders are less likely to act on these beliefs.  So they are protected by this from letting their over-confidence lure them into over-trading.

See Also:

What Is “Theory Of Mind?”

The Psychology of Successful Trading: see clip below of me explaining my new book!

Simulation Theory: A psychological and philosophical consideration

Jacob Rees Mogg Is Wrong To Say That Loss of Passporting Will Not Be A Problem For The City

Author: Tim Short

I am a former investment banking and securitisation specialist, having spent nearly a decade on the trading floor of several international investment banks. Throughout my career, I worked closely with syndicate/traders in order to establish the types of paper which would trade well and gained significant and broad experience in financial markets. Many people have trading experience similar to the above. What marks me out is what I did next. I decided to pursue my interest in philosophy at Doctoral level, specialising in the psychology of how we predict and explain the behaviour of others, and in particular, the errors or biases we are prone to in that process. I have used my experience to write The Psychology of Successful Trading. In this book, I combine the above experience and knowledge to show how biases can lead to inaccurate predictions of the behaviour of other market participants, and how remedying those biases can lead to better predictions and major profits. Learn more on the About Me page.

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