Why do we feel the need to over-analyze our analysis? Could it be that the habit is hiding a major psychological glitch? Maybe it’s really a desire for control.
The need for information and confirmation fulfills a major need in all of us: the need for certainty. This need is also a primal human desire. No one likes to feel out of control, and the market can often make you feel that way because it can be uncertain and chaotic.
When the winds of change blow, the need for certainty can kick in and override the proper decision-making tools that serve you as an investor and trader.
Particularly at times when we feel the wind of change blowing around us, this need for certainty becomes an overriding desire. It makes us prone to doing all those things we know will not work for us as an investor.
Your feeling to play it safe can mask a deep fear that goes right to the core of your very existence. Uncertainty makes you fear for your life. And it’s like being that bullfighter staring down the bull without taking action. You have to take action and overcome the fear.
On the flip side, if you feel the need to trade fast-moving stocks and think you need to always have your money invested in positions, then you likely have a very different issue you are dealing with. This is the most common problem and misconception among both active traders and investors, and leads to a lot of trading, is highly emotional, and churns your account without any real growth.
Knowing your personally type is a great first step in resolving these issues.You cannot know the outcome of an event that has not yet happened.
All the analysis in the world will not guarantee that you are on the right side of a trade. I know that you don’t want to hear this, but your over-analysis serves as a mental safety net that cocoons you in an illusion. You think that you can predict with a higher degree of certainty the most likely outcome of an impending move in an investment.
There are only three things you can know for certain when you put on a new trade, no matter how much time you spend on your analysis:
- You know your entry price.
- You know where your stop is.
- You know your position size.
Beyond that point, you are in unknown territory. Deep down, every trader and investor knows this, even though we try to override this deep truth with the tools of our trade and the research and analysis we do.
Please don’t get me wrong: I am not asking you to abandon your research and analysis. It is a very useful tool to give you a trading edge and should be used. However, analysis is just that: a tool and not a means to an end and I explained why technical analysis is critical for the success of traders and investors in a previous post.
If you can become aware of the fact that hours of analysis is actually stopping you from making money (rather than contributing to your success), you may want to look at analysis in a new way, which is what I help individuals figure out through my weekly articles and stock market signals newsletters.
You might want to ask yourself at what point your need for analysis, reading the news, and other opinions becomes a distraction and begins to cover up other issues, like the fear of uncertainty and the need to be right.
Self-awareness and self-observation are essential skills we need to sharpen in order to become better traders and investors.
Complex things aren’t always better. For me, I think that the simpler things are, the more profound they will be. Generally, individuals are attracted to complex methods and systems. Complexity, however, introduces risks of confusion and analysis-paralysis.
Turning Market Noise Into Investing Signals
The chart below filters out all the market noise and converts it into black-and-white data, but in this case, green and red trading and investing signals. This is the daily chart for trading, but I have created a similar strategy on the weekly chart for longer-term passive investors to ride bull markets up and to avoid and profit from falling prices.
