I have been asked several times lately by new traders how to overcome the fear of placing trades. Just today, I received an email from someone saying that they had alerts set for $JOEZ, $SCEI, and $KERX, saw the setup, but couldn’t quite pull the trigger. The setup worked just as they planned, yet they missed the trade. I never had this problem. In fact, as I have said before, I had quite the opposite problem! However, having talked to a lot of traders, I do know a little bit about this topic. So per the email that I received today, I decided to write this blog and discuss a little thing known as ‘paralysis of analysis’.
The term “paralysis of analysis” refers to over-analyzing (or over-thinking) a situation, so that a decision or action is never taken, thus paralyzing the outcome. Paralysis of analysis occurs in all parts of life, not just trading. Perhaps you have a great idea for a new social media site, but you don’t know how to go about getting started. You don’t know how to get the patent, or how to recruit investors for your idea, or whatever. So you are stuck, basically paralyzed and at a standstill. You will never be succesfull and never fulfill your dreams if you don’t figure out how to overcome this fear. Being paralyzed is great for new traders because you want to take the time to learn before placing trades. You cannot blindly follow a trader and expect to make money. You have to know the concept behind the trades and understand why the trade is being placed if you want to be truly successful. However, once you have taken this time to learn then how to do you muster up the courage to actually push the “buy” button and put your plan into action? Well…..
The first thing that you must remember as you start to overcome this fear is that there is no perfect way to approach trading. Each individual must find an approach that is perfect for themselves. There is no perfect strategy that will always work in the stock market. ‘Always’ doesn’t exist. Learning to treat trading as an art form rather than an exact science is how you learn to be successful. You enter stocks that have the highest probability setups, and you exit stocks when those setups don’t work, with your capital still intact. This is the key to success in trading.
The way that we teach you to overcome this paralysis or analysis at Bulls is by following the 4 steps below:
1. Master high probability setups and know how they should act
If you are trying to read every book out there and use every indicator that has ever been placed on a chart, then you are without a doubt over analyzing this business and just going to run into a wall of confusion. Start by learning 1 or 2 setups and figure out what they are supposed to look like and how they are supposed to act. Start out just trading this setup, then slowly add in another and another until you have a complete arsenal.
2. Start by taking small positions in the trades
Trade the stock as if it were a normal position size. This will help you get your feet wet and get more comfortable with placing actual trades.
3. Have a game plan for the stocks you enter
Know what type of trade it is that you are entering and what you expect out of the stock. If the trade doesn’t go as planned, then sell the stock and move on. There are always other trades just around the corner. Cutting losses quickly on setups that go against you can be your greatest friend.
4. Keep a trade journal
Review your trade journal at night. Discus everything in the journal: why you want to enter the trade, your target prices, what that market is doing, what the sector of the stock is doing, your risk reward in the trade, etc. Below, I included an example of one of my trade journal entries. This will really help you to understand your trades and become a better trader.
Don’t be scared to trade. As in many things in life, the real work is done in preparation for the battle. The battle simply mimics what you did the months before in preparation. Remember, “Luck is what happens when preparation meets opportunity.” Once you have put in the amount of time to learn what you are doing then don’t fear going for it. you just might get “lucky”… Hope this helps!