Did you ever have a moment in your trading career when it was difficult for you to see price?
Did you ever wonder why an indicator was on the chart?
Or think to yourself: is this actually a trade setup according to my trading plan rules?
This confusion is called “paralysis of analysis”. Basically it means traders have so many rules, guidelines, indicators, tools, monitors, and trading strategies that they become puzzled by their own trading plan.
All traders bump into this phenomenon at one point or another so I’m sure most of you either recognize it or are still trying to solve it. This depends in which stage of trading development you are.
Here is an example of a chart that utilizes a ton of tools and indicators. It would be very far stretched to imagine anyone knowing what to do.
Here above is a classical example of paralysis of analysis.
The chart is fully overloaded and the lack of clarity is drastically low. The trader does not know whether the market is trending or not, whether an opportunity has arisen, whether there are filters in play, if an entry is valid and how or what type of trade management should be followed.
Even if a trader actually has a trading plan that could be connected to the ton of indicators and tools on the charts, it would be difficult to imagine anyone actually implementing the strategy and trading plan correctly.
Logically, everyone would be totally and utterly confused when viewing these charts and a trader can never obtain consistent success when in a state of trading confusion.
The question is: how can traders solve it? Here below you will find our advice to this answer, but please let us know in the comment section about your own past or current experiences with paralysis of analysis. Thanks!
SOLUTION 1: BE CAREFUL WITH YOUR OWN STRATEGIES
No trader can avoid paralysis of analysis when creating their own strategy from scratch. That is why implementing a well-developed strategy like the Double Trend Trap method provides traders with an edge – without the hassle, mental efforts and heavy time investments which are needed for creating a self-developed strategy.
SOLUTION 2: FIND A MENTOR
Trying to solve everything on your own is not typically the fastest or the best solution. Engaging and asking a trader or group of traders how to strike a balance in their trading plan both improves and speeds up the learning curve and process of solving the paralysis of analysis for every Forex trader. One of those ways a trader can learn quickly is via a live trading room. Check out this link to see the many advantages.
SOLUTION 3: KEEP TRADING SIMPLE
Most traders tend to make things more complicated than they really need to. In most cases complexity is associated with a deeper and better understanding of the market. However, the real result as we know is paralysis of analysis. Keeping the trading tools, indicators, and the charts clean and simple provides clarity and understanding for each trader regarding the trading plan and rules. It is not easy for traders to keep the charts clean and simple, but remember that price action is the main analysis. All traders really need are a few extra pieces of the puzzles to equip themselves with more understanding. If your charts are looking like the cockpit of an airplane captain, then the border of simple versus complicated has crossed to the latter most likely.
SOLUTION 4: USE THE DTT TEMPLATE
By using the Double Trend Trap (DTT) template, the trader has reached a world of simplicity. The DTT tools and indicators have been built with simplicity at heart. This allows all traders to comprehend the market structure without getting a headache after analyzing each pair. The simplicity allows traders to analyze, monitor and trade in a short-term frame, thus allowing traders with a job to participate or allowing more active traders to trader multiple currency pairs.
SOLUTION 5: APPLY THE TOFTEM MODEL
By applying the TOFTEM model the trader is able to distinguish which rules, tools, and indicators belong to each step of the process. In that way traders avoid using elements for process A which are actually part of process B. For instance, daily tops and bottoms would not be mistaken as an entry option by our DTT traders as tops and bottoms are used in the filter phase of the model. Check out the model here.
SOLUTION 6: MACTH YOUR STRATEGY WITH YOUR OWN PSYCHOLOGY
Each trader has their own preferences and ways of viewing the market and price action. Ideally traders find a balance with rules that are profitable and rules that are relatively straight forward to follow. The latter becomes easier when a strategy matches your psychology.
SOLUTION 7: USE MULTIPLE TIME FRAME ANALYSIS
Some traders might wonder if multiple time frame analysis does not complicate trading. The answer: it depends on how it is done. Keeping trading simple does not mean there isn’t a way of understanding the market structure on multiple time frames. Traders can simultaneously keep trading simple and use multiple time frame analysis as long as the charts of each time frame are understandable and each time frame has a clear role in the TOFTEM model (mentioned above). Read more here about keeping trading simple and using multiple time frame analysis at the same time.
Have you ever noticed paralysis of analysis during your trading?
How did that feel?
Hopefully these 7 solutions helps all traders with guidance on how to avoid paralysis of analysis. If you have follow-up questions, then we also are here to help. Please post any of your queries down below.
Thanks for sharing and reading this article and wish you Happy Trading!
Winner’s Edge Trading, as seen on: