Do You Have Trading Analysis Paralysis?

A man has been going to the horse races for 25 years.  Before he goes, he researches everything he can find about the horses and the jockeys – their age, weight, wins, and losses.  He knows what the weather will be and if the condition of the track will be affected.  He knows the odds on each race.  Confidently, he places his bet.  Next to him is a young man who is attending his first horse race.  In fact, he just arrived 15 minutes ago.  Placing his bet next to the old timer, he picks a horse from random.  Lo and behold, the new kid’s horse wins.  The old timer, with a tone of frustration mutters, “Beginner’s Luck.”

As a novice trader, you probably have had your fair share of “lucky breaks.”  You’ve probably also had times when you have pored over endless amounts of market information and made a “sure trade” – and then lost your investment.  Either way, it’s not a good way to approach the game of trading.  There needs to be a healthy balance of analysis and just trading.  Sure, if you make a mistake, you can lose your money – on that trade.  But if you are a prepared trader, those losses should be rare, and besides, a loss helps you learn for the next time.

Analysis paralysis is an informal phrase applied when the opportunity cost of decision analysis exceeds the benefits.  When your hard-earned money is on the line, there's a strong urge to be extremely careful.  But, if you constantly search for more statistics, reports, studies, evaluations and data, you will come to little real decision-making because more "study“ or "research“ always needs to be done!

One trader we know says, “For a while I couldn't come up with a trading plan because at first I was making it too simple and I thought there was more to it.  Well I found out that being simple was right to begin with.  I know that I am a good technical analyst and I know that I am right a good portion of the time.  I have begun to embrace uncertainty and admit that I don't need to know where the market will go next.  If I stick with my trading plan and setups then I will survive.  There are thousands of tools ranging from market profile, to candlestick analysis that will aid me to figure out what will happen next but at the end of the day it could be one trader that changes all of it and makes me wrong.  The more I accept this reality the clearer I see the markets and the opportunities presented to me every day.” 

Most traders are not worried about losing all of their money, but instead have a fear of being wrong.  They expect perfection of themselves, and when they do not achieve it (as they never will), they feel like a failure. 

Research has shown that it is actually detrimental to fall into “analysis paralysis” when making a decision.  Dr. David Armor and Dr. Shelly Taylor found that it might be wise to just quickly choose an alternative and focus all your energy on achieving an objective.

So when you start to see yourself over-analyzing and becoming paralyzed, stop!  Just make the trade.  You will feel free, and will trade more profitably in the end.

In the mean time, Good Luck on your journey to success…

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