Sunday, October 5, 2008

Analysis paralysis

Trading is a mind game or game of human emotions and logic. We Homo sapiens are undoubtedly the complex cocktail in this planet. Emotions, greed, fear control us if we don’t use relative logic. What ever we do, we want to win, and we are very competitive by nature, that’s normal. Trading is particularly very tough game to play, emotion, greed and fear always do damage to our performance, but we can not get ride of them by any means. In a game some one has to be beaten, but who wants to be beaten? Probably you are thinking newbie’s are the weaker opponent. They don’t have proper game plan; they have lack of experience, lack of confidence, so they are the easy target. Yes probably you are right. But as we all know 90% of the traders fail to make money, not every one in the 90% are new. So there are many experienced traders are also losing money. You can ask; they have game plan; they have many tools in their arsenal why they lose money? Answer is very simple too much analysis, using too many indicator, trying to be complex. If you over analyse a trade, you may end up not trading it, remember trading is game of probability. Many traders use too many indicators, which more or less tell the same story, story of price action. If you can not see any trade signal in the price action, indicators will not tell you any different story, most of the indicators are lagging, except volume. Volume is the good indicator if you know how to use it. Some traders use so many indicators, that it’s impossible to monitor every one of them. Now a days most of the drivers use GPS (Global positioning system),its user friendly .Suppose you have a GPS will you still need street directory or will ask pedestrians or fellow passengers how to go to your destination. Answer is no, we don’t need any thing but GPS. Do not over complicate your system, trading plan and your chart .keep it simple, simple is the best

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