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Analysis paralysis

Successful trading is unthinkable without sound analysis. It takes technically and/or fundamentally conclusive setups to systematically find promising trading opportunities. Many traders use a combination of instruments, which must mutually confirm each other in order to qualify for a high probability trading setup.

However, there should be an upper limit to the number of instruments used. After all, if you look at too many different indicators and data sources, you will hardly find clear signals anymore as the messages of all those instruments will become inconsistent with one another. Ultimately, this results in too much noise and complexity, preventing traders from making clear decisions.


Analysis paralysis often develops unintentionally over time. Initially, the trader begins to analyse with some basic tools such as resistance and support, moving averages, and earnings surprises. Bit by bit, he adds new indicators over weeks and months which helped getting better signals at individual setups. However, at some point the chart is eventually overloaded and analysis just too specific and complex.

However, analysis paralysis is not about too many instruments, only. Another issue is an exaggerated level of detail. This is the case, for example, if traders search for the “final ultimate confirmation” of a signal in ever lower time frames. Instead of focusing on the big picture and the main indicators, you can easily run into useless, random details.


A good example is the search for the 'perfect' stop. But we will never find it; no matter how long we analyse. It is a waste of time to examine in each individual case why a trade was stopped out unfavorably before the market moved in the right direction. It is much more important to use a solid method of stopping and maintaining it consistently. Thus the positive and negative coincidences will level out over time.

Ultimately, analysis paralysis is a result of perfectionism. Many people are accustomed from other areas of working life to collect as much information as possible on a problem and thus to reach an ideal solution. However, this will not work in the markets, as each and every trade has residual risk even with the best signal. In the markets, nobody can be right all the time. You can and will suffer losses. No matter how long and how detailed you analyse: There will never be complete certainty for a trade. Excessive analyses just lead to paralysing contradictions.

Instead of perfectionism, traders must develop confidence in their method. We must be aware that in trading, more analysis can ultimately be a disadvantage. The markets are a complex system that cannot be fully explained. It is therefore crucial to rely on few, but meaningful instruments for analysis, and to be able to react quickly and consistently as opportunities develop.

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