Over-thinking Can Have a Negative Effect on Trading

Forex trading takes a steady and analytical mind. If you want the wild rush of gambling you should probably visit a casino instead because gut instinct alone is highly unlikely to be successful in the currency markets. Whether you go in for painstaking technical analysis, dissect every news announcement or go for the trends, you will need a cool head, a favoured technique (or several) and the ability to stick to your plans.
Whatever your trading style you should have predetermined entry and exit points but sometimes over-analysing the situation and waiting for the perfect alignment of circumstance can be detrimental. It’s been dubbed ‘analysis paralysis’ – the over-thinking and minute study of every detail that can leave you finally happy that you’re ready to make a trade… only to find the opportunity has already gone. Or perhaps you never even reach the point of feeling ready to make a trade, still waiting for the planets to align in a particular pattern (metaphorically speaking that is, we don’t suggest you actually use astrology as a trading guide).
It’s great to have all the theories mastered but all the knowledge in the world isn’t going to help you turn a profit unless you apply it and take action. In forex terms, that means plunging in and making trades. You don’t necessarily need to have the reactions and convictions of a scalper but you do need to take decisive action, otherwise you could find yourself watching trade after trade simply get away while you wait for the perfect set-up.
There are several reasons why traders are drawn into over-thinking. Beginners often lack confidence in their own abilities. Getting education and training can help but until you start grabbing screen time and putting it into practise, that knowledge can actually exacerbate the problem. At some point you just have to plunge right in.
Making significant or persistent losses can also hit confidence for a six and cause a trader to hesitate on future trades. The key here is simply to have faith in your trading methods or, if you really feel that there’s something fundamentally flawed in your technique, to try something new. It’s generally best not to try to reverse the effects of a losing streak with one big ‘double or quits’ trade. Ease yourself back in with a series of smaller or relatively low-risk trades. Every trader loses occasionally and it’s important to accept that fact and not be afraid of losing money at times.
It’s good to gather information from different sources but too many external influences can cause a confusing white noise, especially if they are contradicting each other. Whether it’s trading websites, the news, other traders or any other source, it can sometimes pay to narrow the amount of information you are receiving from various channels. This may sound counter-intuitive. In general terms the more information you can arm yourself with the better, but if it is leading to over-analysis and an inability to be proactive it can be detrimental.