Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

Sign in to follow this  
thetradingdoctor

Analysis Paralysis

Recommended Posts

ANALYSIS PARALYSIS

 

attachment.php?attachmentid=2166&stc=1&d=1185976723

 

The ability to simplify means to eliminate the unnecessary so that the necessary may speak…Hans Hofmann, Introduction to the Bootstrap, 1993

 

Emails from traders and investors of every ilk come to me on a daily basis. I am grateful, and urge you to keep them coming, as you inspire me, challenge me and force me to think. Everyone has a different way of being in the world and...as a logical corollary...in the markets. I get charts, graphs, opinions, links to articles, and more opinions. So much lately has been what the Fed will or will not do and how it will affect the precious metals and the dollar. I work hard every day to prevent my head from spinning, keep it attached firmly to the neck area and to attempt to filter out the signal:noise ratio."

 

Did I mention that people send me charts? They range from the utterly and overly simplistic to something which might be considered a Rorschach test gone very badly. I respect those who can trade from intensely complicated (to me anyway), charts which contain 10 or more different technical indicators plus at least three colors. If that is what works for your particular brain structure, then that is what works. Over many years of trading and experimenting with more systems and indicators that I care to recall, I have come to the conclusion that, in trading, less is more. For my own purposes I like to see price, volume, a couple of moving averages and then draw trend lines. For me, the simpler the better. It helps me block out so much noise, obviates conflict when indicators are not in synch or are giving different messages, and allows me to be definitive in what I do.

 

Simplicity is the ultimate sophistication…Leonardo DaVinci

 

Trader Alex (name changed to protect the innocent) sent me a batch of charts the other day. The charts were in several different time frames, and were loaded with indicators to the point where I was barely able to make out what Alex wished to trade. Worse than that, I could not figure out HOW Alex was trading. In this situation, one does the logical thing. One asks Alex. The response I got was quite revealing and, perhaps you can find a trading lesson here. Alex told me that he lived his life by making flow diagrams. Everything he did or planned to do, he diagrammed out beforehand in order for him to "be prepared" for any eventuality. For example, if he was invited to a party, he would do the following: starting a week before, he would map out (on paper) everything he had to do to prepare for the party, including selection of clothing, washing his car, telling selected people where he would be during those hours, finding out who would be at the party and how they would be dressed, how they would be arriving, how they would be mentally (good or bad moods), what they would be bringing to the host and hostess and so on and so on. Sometimes, he would wake up in the middle of the night to expand the flow diagram as new thoughts and possibilities crossed his mind. A day or two before the party, Alex began to be infused with doubt. Had he thought of everything? What could happen that he had not anticipated? Would be go into a state of social paresis if someone was at the party whom he had not expected or if someone said something to him for which he did not have an answer? If you think this sounds a bit whacko, you are likely correct.

 

Nonetheless, to Alex, this was his modus operandi, beginning from early childhood when he felt that his life was careening out of control after the divorce of his parents. He took almost complete responsibility for the divorce and vowed from that day forward that he was going to do everything possible to ensure that he did not make the same mistake again. Alex's response to what he perceived to be HIS problem (the bitter divorce of his parents) was to develop OCD (Obsessive-Compulsive Disorder). The manifestation of this was the development of increasingly complex flow charts and diagrams which he believed would allow him to control every aspect of his life through prediction. Now...take this one step further. Alex enters the financial markets and attempts to trade. Before he is able to place a trade, he makes the equivalent of a life pattern flow diagram. He adds technical indicators, one after the other and intersperses them with every possible news development or economic report that could or will impact the trading on any particular day. Alex is ready, so he thinks. Alex is prepared, so he thinks. Armed with a total overload of information and unable to sort out what is real and what is not, Alex is set to trade. Why is he writing to me? Because he is totally unable to execute. Alex suffers from trading paralysis. He has done all of this work, yet he feels that something is wrong. It is not the right time to make the trade, more news will come out which will affect the trade, he decides to wait for a "better entry," he thinks maybe he should do an option spread just in case. Every conceivable excuse is put forward by Alex for not trading: It's the wrong time. There is too much risk. Maybe if I just wait a little bit. Something just doesn't look right.

 

Alex will not get through this situation easily, as it is a modus vivendi for him which is transferring to every aspect of his life, including trading. What can you do ? Learn from this. To risk means taking chances in the face of uncertainty. We cannot control what the markets will or will not do. We cannot map everything out on a neat flow diagram, expect things to go our way and then panic when they do not. The best traders are flexible, adaptable, embrace uncertainty and get out quickly when they are wrong. The best traders do not make excuses and do not blame others. The best traders do not get themselves into states of analysis paralysis. They keep it simple and remain fluid.

 

Everything should be made as simple as possible, but not simpler…Albert Einstein

 

Until Next Time,

Good Trading and Brain On!

Janice Dorn, M.D., Ph.D.

www.thetradingdoctor.com

 

Copyright ©2007 Janice Dorn, M.D., Ph.D. – Ocean Ivory LLC

5aa70deb5f345_analysisparalysis.jpg.cf9e65490aa62c79789e75f6f9bcdaea.jpg

Edited by Soultrader

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

  • Topics

  • Posts

    • HLF Herbalife stock, watch for a bull flag breakout above 9.02 at https://stockconsultant.com/?HLF
    • Date: 1st April 2025.   Will Gold’s Rally Hold Strong as New Trade Tariffs Take Effect Tomorrow?   Gold continues to increase in value for a sixth consecutive day and is trading more than 17% higher in 2025. Amid fear of higher inflation, a recession and the tariffs war escalating investors continue to invest into Gold pushing demand higher. The trade policy from April 2nd onwards continues to be a key factor for the whole market. Can Gold maintain its upward trend? Trade Policy From Tomorrow Onwards Starting as soon as tomorrow, a 25% tariff will be imposed on all passenger cars imported into the United States. While this White House policy is anticipated to negatively affect European industrial performance, it will also lead to higher transportation and maintenance costs for everyday American taxpayers. The negative impact expected on both the EU and US is one of the reasons investors continue to buy Gold. Additionally, last month, President Donald Trump announced reciprocal sanctions against any trade partners that impose import restrictions on US goods. Furthermore, tariffs on products from Canada and the EU could increase even more if they attempt to coordinate a response. Overall, investors continue to worry that new trade barriers will prompt retaliatory measures, particularly from China, the Eurozone, and Japan. Any retaliation is likely to escalate the trade conflict and prompt another reaction from the US. Experts at Goldman Sachs and other investment banks warn that this will lead to rising inflation and unemployment. They also caution that it could effectively halt economic growth in the US.   XAUUSD 1-Hour Chart   The Weakness In The US Dollar Another factor which is allowing the price of XAUUSD to increase in value is the US Dollar which has been unable to maintain any bullish momentum. Despite last week’s Core PCE Price Index rising to its highest level since February 2024, the US Dollar has been unable to see any significant rise in value. Due to the US Dollar and Gold's inverse correlation, the price of Gold is benefiting from the Dollar weakness. Investors worry that new trade barriers will prompt retaliatory measures from China, the Eurozone, and Japan, potentially escalating the conflict. Experts at The Goldman Sachs Group Inc. believe that such actions by the US administration will drive rising inflation and unemployment while effectively halting economic growth in the country. Can Gold Maintain Momentum? When it comes to technical analysis, the price of Gold is not trading at a price where oscillators are indicating the instrument is overbought. The Relative Strength Index currently trades at 68.88, outside of the overbought area, since Gold’s price fell 0.65% during this morning’s session. However, even with this decline, the price still remains 0.40% higher than the day’s open price. In terms of fundamental analysis, there continues to be plenty of factors indicating the price could continue to rise. However, the price movement of the week will also partially depend on the employment data from the US. The US is due to release the JOLTS Job Vacancies for February this afternoon, the ADP Non-Farm Employment Change tomorrow, and the NFP Change and Unemployment Rate on Friday. If all data reads higher than expectations, investors may look to sell to lock in profits at the high price. Key Takeaway Points: Gold’s Rally Continues – Up 17% in 2025 as investors seek safety from inflation, recession fears, and trade tensions. Trade War Impact – New US tariffs and potential retaliation from China, the EU, and Japan drive uncertainty, boosting Gold demand. Weak US Dollar – The Dollar’s struggle supports Gold’s rise due to their inverse correlation. Gold’s Outlook – Uptrend may continue, but US jobs data could trigger profit-taking. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Date: 31st March 2025.   Trump Confirms Tariffs on All Countries, Sending Stocks Lower.   The NASDAQ continues to trade lower due to the US confirming the latest tariffs will be on all countries. In addition to this, bearish volatility also is largely due to the higher inflation data from Friday. The NASDAQ declines to its lowest price since September 11th 2024. Core PCE Price Index - Inflation Increases Again! The PCE Price Index read 2.5% aligning with expert forecasts not triggering any alarm bells. However, the Core PCE Price Index rose from 0.3% to 0.4% MoM and from 2.7% to 2.8% YoY, signalling growing inflationary pressure. This increases the likelihood that the Federal Reserve will maintain elevated interest rates for an extended period. The NASDAQ fell 2.60% due to the higher inflation reading which is known to pressure the stock market due to pressure on consumer demand and a more hawkish Federal Reserve. Boston Fed President Susan Collins recently commented that tariffs could drive up inflation, though the long-term impact remains uncertain. She told journalists that a short-term spike is the most probable outcome but believes the current pause in monetary policy adjustments is appropriate given the prevailing uncertainties. Although, certain investment banks such as JP Morgan actually believe the Federal Reserve will be forced into cutting rates. This is due to expectations that the economy will struggle under the new trade policy. For example, JP Morgan expects the Federal Reserve to delay rate cuts but will quickly cut towards the end of 2025. Market Risk Appetite Takes a Hit! A big factor for the day is the drop in the risk appetite of investors. This can be seen from the VIX which is up almost 6%, Gold which is trading 1.30% higher and the Japanese Yen which is the day’s best performing currency. Most safe haven assets, bar the US Dollar, increase in value. It is also worth noting that all indices are decreasing in value during this morning's Asian session with the Nikkei225 and NASDAQ witnessing the strongest decline. Previously the stock market rose in value as investors heard rumours that tariffs would only be on certain countries. This bullish swing occurred between March 14th and 25th. Over the weekend, President Donald Trump indicated that the upcoming tariffs would apply to all countries, not just those with the largest trade imbalances with the US. NASDAQ - Technical Analysis In terms of technical analysis, the NASDAQ continues to obtain indications that sellers control the price action. The price opens on a bearish price gap measuring 0.30% and trades below all Moving Averages on all timeframes. The NASDAQ also trades below the VWAP and almost 100% of the most influential components (stocks) are declining in value.     The next significant support level is at $18,313, and the resistance level stands at $20,367.95. Key Takeaway Points: NASDAQ falls to its lowest since September 2024 as the US confirms tariffs on all countries, adding to inflation concerns. Core PCE inflation rises to 0.4% MoM and 2.8% YoY, increasing the likelihood of prolonged high interest rates. Investor risk appetite drops as VIX jumps 6%, gold gains 1.3%, and safe-haven assets outperform. NASDAQ shows strong bearish momentum, trading below key technical levels with support at $18,313 and resistance at $20,367.95. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • PM Philip Morris stock, top of range breakout at https://stockconsultant.com/?PM
    • EXC Exelon stock, nice range breakout at https://stockconsultant.com/?EXC
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.