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?
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.
Problem No 1 – 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 No 2 – 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 every trade. 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 No 3 – 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.
Do ‘nothing’ is also the key to trading success.
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.
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