Does this sound familiar: You see what you believe at first is a perfectly good trade setup, however, as you continue to analyse and study it you begin to feel less and less sure about the trade, yet you aren’t totally sure why?
This is a common problem for traders; the ‘deer in the headlights’ scenario that occurs when you have too much ‘congestion’ in your thinking. Traders often over-analyse themselves right out of a good trade setup, and it can be a very big problem that can have severe negative consequences on your trading performance. Over-thinking can also cause traders to screw up perfectly good trades that they’ve already entered, this is another big problem you need to deal with.
The goal of this article is to identify the main reasons that over-thinking negatively impacts your trading and how to solve them…
Problem – Too many external influences causing confusion and over-analysis
News, trading websites, CNBC, other people, etc.; all of these things have one thing in common, which is that they cause you to over-analyse the market and become confused. External influences are probably the biggest reason traders think themselves right out of good trades, mess around with their trades when they’re live and over-trade. When you have too many external influences, it clouds your mind and thought process and causes you to second-guess your trading strategy.
Cure – Make a decision to ignore external influences
The key to ignoring external influences such as the ones discussed above, is to simply gain understanding and knowledge that these influences are actually HURTING you. Once you fully believe and accept that, you will no longer care about them and the result should be that you will focus more on your trading strategy and on mastering it, and less and less on external influences.
Trading success is the result of being a master of your trading strategy and having extreme clarity on what you are looking for in the market and sticking to that without any outside influences screwing that up.
Problem – Psyching yourself out of a good trade
There is nothing worse than seeing a perfectly good trade setup that meets your trading plan criteria but you don’t enter it, then it takes off in your favour. A big cause of this is over-analysing your trading strategy and thinking too deeply about it.
I’m sure you’ve fallen victim to over-thinking your trading strategy. You see a good price action signal for example, but then you begin looking at the surrounding price bars and start finding reasons why it ‘might not work’. Or, you start reading economic news and opinion pieces about the market you’re trading and you end up getting turned off to the trade because of someone’s opposing opinion or view.
Cure – Don’t think so hard about it
This a bit more of a complex aspect of over-thinking, because there are a number of reasons that traders think themselves out of perfectly good trade setups. But, the main two are fear and ignorance.
You have to stop being afraid of losing money, and the best way to eliminate that fear is to accept it. Trading involves having losing and winning trades, not just winning trades. The sooner you accept that, the sooner you will understand the need to manage your risk properly on everytrade. Also, accepting that you will have losing trades will help you eliminate the fear of a loser, which can be a big reason traders find reasons not to trade.
Remember, each trade is just another execution of your trading edge…don’t think too hard, if you see the signal and it meets your criteria, take the trade and walk away. Sure, you can always find reasons to not take a trade, but if you always do that you will not be following your trading strategy and you’ll be giving into fear. You have to take every obvious / clear instance of your trading edge in order for it to work in your favour and make you money over a series of trades. Trading involves risk, accept the risk early on and manage it, or don’t be a trader or else you will be stuck in a cycle of fear and over-analysis of the market.
Problem – Over-thinking / over-analysis causing thought ‘congestion’
Having ‘congested’ thoughts about trading means you are confused and that comes from analysing the charts too much and taking in too many external variables as discussed previously. It can also come from not knowing what you’re looking for in the market (not having a strategy) or not having your trading strategy mastered yet.
Cure – Stop being so involved and ‘clean up’ your trading process and mindset
The first thing you can do if you haven’t already, is de-clutter your charts. If you are trading with tons of indicators and messy charts, you are going to be confused and have a congested trading mindset. To be a successful trader, you need clear and simple thoughts: Here is what my trading strategy is….Is it present now on the charts? If not, do nothing, go away for a while (a day maybe), if it is present then set up the trade parameters and do nothing again. I discussed why ‘nothing’ is the key to trading success in a recent article, check that out to learn more.
Another thing you can do to ease thought congestion, is to simply stop looking at the charts so much. This can be hard if you have a job where you’re on the computer most of the day, but it’s important. I recommend deleting your trading app on your smart phone if you have one; you don’t need that, and the charts look distorted on cell phones anyways, I don’t recommend mobile trading as a general rule. Only look at them on your computer and schedule regular times each day to it; maybe twice a day (morning and evening). But, if you are looking at the charts all day every 10 to 20 minutes (because you’re addicted to trading) you are going to over-trade due to over-analysis, I guarantee you that.
Looking at the charts too much is also a big reason why traders over-analyse and subsequently mess up their trades after they’re live. Leaving your trades alone while they’re live is about the best way to get the most out of your trading strategy.
Problem – Too little confidence in your ability causing you to second-guess yourself
Obviously, if you aren’t confident in your ability to trade, you aren’t going to make money. You need to be decisive to make money as a trader, not confused and inconsistent.
Cure – Get training and screen time
The two biggest cures to low self-confidence in your trading ability are education / training and screen time. You need to learn how to trade from a qualified trading course / mentor. Trading seems like something you can ‘learn on your own’, but take it from some of my students; you are much better off obtaining training from someone who can help you avoid many of the common pitfalls that cause traders to lose money early-on. Your hard-earned money is going to be on the line and you want to take as few risks with that as possible, and losing money simply because you didn’t get education is just foolish.
After obtaining education and mastering your trading strategy, simply getting in screen-time with your trading strategy is a great way to build your confidence up. Demo trade for a while but don’t do it too long, start live trading with small amounts of money at first to gradually build your confidence with real-money trading.
I walked the same journey as you, and I went through the same psychologies issues discussed in this article, and it’s my goal to help my students recognise these issues and then help them solve them and avoid the years of mental and financial heartache that are often the result of these issues.
You can break free of this cycle of over-thinking, over analysis and traders’ ‘insanity’. As your coach, I am not only here to make you aware of these mental traps, but to help you identify them, solve them and create a routine that will help you avoid them into the future.