Why Overthinking Won’t Solve Your Trading Problem

A songwriter once said, ”over thinking no fit solve problem” Have you ever sat in front of your trading desk, watching every tick of price movements and thinking about all the possible outcomes of your trades, you analyse and reanalyse but you end up watching the trade go in your anticipated direction without you in it? lol, I know this can be really frustrating, right?

I experienced this quite a number of times during my early years of trading, and trust me, it was not a funny experience. If you find yourself overthinking about your trades, that it negatively affects your trading results, relax, you are not alone. I have passed through this stage myself and I know what it feels like to be there. Besides, I have scaled through this phase successfully and I know that you too can succeed.

Quite a number of things can cause you as a trader to think too much about your trades and some of them include:

 

1. Fear Of Losing

 

This is probably the major battle most traders fight. Nobody likes the feeling of being wrong and losing money. That’s the reason you probably spend so much time analysing, analysing and reanalysing that your analysis turns to paralysis. lol… You are stuck in the cycle of ”what if” that you end up missing out on good moves and you are unable to have a good night’s sleep because you worry too much about losing.

In the early stages of my trading career, I struggled with the fear of losing and that’s the reason I was always risking less than 1% on my trades because I could not afford to lose my trading capital. As a trader, you need to accept the fact that losses are inevitable in the market so instead of trying to avoid losses, what you should learn to do is to manage your risk in a way that does not cause you to lose your trading funds.

2. Self Doubt

 

At the beginning stage of my trading career, I used to follow some so-called ”forex experts” on social media. I took in everything they said hook, line, and sinker. If for instance I was anticipating a buy on EURUSD and they were anticipating a sell on EURUSD, I would immediately close my buy trade and follow their own analysis. I did not have confidence in my own trading. I was always thinking that others were better than me that I doubted my own analysis on several occasions. But along the way, I realised that most of the outcomes of the trades of the traders I was depending on were negative. So I had to sit myself up one day, I unfollowed them and decided to stick with my own analysis regardless. That made me build confidence in my trading and I started to see more positive results.

3. Too Much Information

 

I know that you have heard severally that too much of everything is bad. In a bid to avoid losses, most traders think they can outsmart the market by gaining knowledge upon knowledge upon knowledge from every Tom, Dick, and Harry they come across all over the place. One tells you to use different indicators on your chart, another tells you indicators don’t work. Some tell you day trading is the way to go, while others say swing trading is the best. At the end of the day, you come to your chart looking clueless. Of course, there is a need for you to get training on having an effective trading strategy and risk management plan but once you have gotten a good hang of your trading strategy from your trading mentor whose style suits you well, what you should focus more on is building your mental health by getting coaching on the psychology of trading.

Now to help you curb the harm overthinking does to your trading, take note of these steps:

 

1. Separate The Outcome Of Your Previous Trade With The Current One

 

Instead of focusing on previous losses and being anxious about your trades, understand that every trade is unique. The outcome of your previous trade (win or lose ) does not determine the result of the current trade or your next trade.

2. Create A Trading Plan

 

A writer once said that ”without a plan, you are just shooting in the wind”. After you enter a trade and you start to ask questions like, ”should I close my trade now?, where should I put my stop loss?, ”should I hold the trade until after the news?, ”what time frame should I use to monitor my trades? and blah! blah! blah! It is a clear sign that you are among those traders who do not sit down to do a proper analysis of their trades. This will cause you to overthink the whole thing and you will end up with a headache. Traders who fail to plan, have indirectly planned to fail. Do not allow yourself to take another trade until you have carefully planned how the trade will be executed. List out all the confluences you need to see before you take a trade and note down the currency pair, the trading session, and the time frame you are executing on.

3. Take Bearable Risk

 

The money you put on the line should be an amount you can afford to lose. Before you click the buy or sell button ensures that your stop-loss, position size, entries, and exits are well calculated and placed because that is the majorly that you have control over. Also, include your trade management technique before entering a trade. Overleveraging will cause you to worry too much about the outcome. So avoid it at all costs so that you can sleep well at night and let your trade run in peace.

4. Take Your Own Trade

 

Regardless of what other traders’ biases may be, trust your own analysis and stick with your trades. Instead of poking your nose into other traders’ trades like I used to do, lol… Spend time recording your trades and measuring your performance from time to time to know what areas you need to improve on. Stop comparing yourself to other traders. You are not as bad as you think you are. If you think others are good, what makes you think you cannot be better? It’s not like the other traders have two heads, Do they?

5. Trade What You See, Not What You Think

 

Analyse the market for what it is. Stop trying to control the market because no matter how hard you try you cannot control the market. If you do not stop you will just end up losing more and more until your entire trading capital is wiped out. For instance when carrying out your analysis and it is clear from all indication that an asset is trending upward but you keep forcing long-term sell trades, your account go hear am. Put ego aside and follow what price is doing.

Listen, if you follow the above steps religiously you’ll be amazed at the results you’ll get. Another songwriter once said, ”no mountain is too high for you to climb, all you have to do is have some climbing faith” With determination and strong willpower, you can overcome the ”what if I lose” mentality and focus more on ”what if I win? What you focus on expands. The more you focus on winning by doing the right thing, the more you begin to win consistently.

Please leave a comment with your thoughts on this post and if you have got any questions to ask, kindly contact me here.