Less Analysis can = More Success
I used to spend way to much time analyzing markets. I’ve known for awhile that over-analysis leads to analysis paralysis…and I’ve really come to understand the reasoning for this. Looking back over the last month I can see my trade selection was pretty smooth. This despite being minus a home desk-top, blown mother board , and the tech kid struggling mightily day in day out to figure out why Go-to-Meeting and Currenex don’t get along with my work desk-top anymore. (Thank God the 5-year old old Sony laptop is still going strong)
Despite having computer problems on both ends I still stayed on a nice track, even though I had spent considerably less time on the screen. Which actually makes sense to me now, and is also inline with my chosen philosophy of simplify, simplify, simplify.
Analyzing markets during times I was not going to trade was cluttering my mind with questions, assumptions, and sometimes, worst of all, opinions. Advice I would give to other traders on the slopes of their learning curve: only analyze markets just ahead of when you are goign to trade them. Taking in random snapshots of price activity at different hours, particualrly those periods of very low volume, is not going to help in your trade selection, IMHO. In fact it very likely can work against you.
Have a routine you follow everytime you prepare to trade. This is the time to start your analysis. Keep in simple! Record the current direction on time frames you trade, identify your set-ups, and prepare to take signals. The last thing you want to happen as you are anlyzing markets in real time, about to risk your hard earned money, is to be thinking about questions or conclusions you may have made the last time you were on the screen.
Traders might also be better served by choosing what time frame they are going to trade before they execute their pre-trade routine. I prefer to take signals on the 15 minute with confirmation on the 60, but I will take signals on the 3 with confirmation on the 15. Knowing this ahead of time saves me form wasting mental energy on decisions other than those of my chosen focus. Similiarly I have my set-ups and signals quantified well ahead of any decision making. The net effect of simplifying things means less decisions to make. As a trader you want to take away as many questions as you possibly can to where you dont’ have a choice, you take the signal, or you maintain your current position. Learn to love definition. If you are having to many questions you aren’t prepared to make a decision. And if you aren’t prepared to make a decison the first culprit I would look at is your own analysis habits.
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009, and a host of The Daily Forex Report on ForexTV.com.
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