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Forex Trading Analysis Paralysis
Written by: PaxForex analytics dept - Tuesday, 13 September 2016 0 comments
A common challenge impacting most traders and investors is the tendency to develop analysis paralysis – also known as trading paralysis. This happens because because there are a number of conflicting thoughts and emotions that can affect a traders ability to pull the trigger on a buy or sell order. Analysis paralysis, or trading paralysis, doesn’t only affect traders on entry signals. It can also affect investors and day traders by preventing them from exiting, or not exiting, positions when they should.
When you trade forex or any other financial instrument, you will either be in a profitable position or a losing position. The market can only go up or down, and as such the fundamentals of forex are actually very simple to understand. However, many forex traders all too easily end up becoming obsessed with watching the markets and analyzing them. They overthink their every move, and become easily deceived as a result.
Too many people try to plot various technical indicators and think that by plotting heaps of indicators they will be able to make the right trading decision. The common perception that new traders have is that by having multiple indicators on their charts at the same time, a moment will arrive when all the indicators will point in the same direction and that will trigger their buy or sell order
and help them make profit. In truth, that moment rarely ever arrives when any combination of various indicators will give a clear signal on when to buy or sell. Instead, plotting too many indicators usually leads to analysis paralysis.
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.
A trader should develop a simple yet effective trading strategy that has been meticulously tested on a live trading account for at least one year. Also, a trader should have an unwavering confidence in his/hers trading strategy, no matter what happens on the market. This strategy should focus on in-depth technical analysis based on price, as this is the most powerful and effective way to profit from price movements. Also markets need to be approached with patience and logic in order to enhance your chances of performing effective market analysis that primarily results in profits.