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  • Writer's pictureVasily Trader

Learn Paralysis By Analysis | Trading Psychology

Updated: Jun 10

paralysis by analysis in trading

Hey traders,

In this article, we will discuss a very important term in trading psychology - paralysis by analysis in trading.

Paralysis by analysis occurs when the trader is overwhelmed by a complexity of the data that he is working with. Most of the time, it happens when one is relying on wide spectra of non correlated metrics. That can be various trading indicators, different news outlets and analytical articles and multiple technical tools.

Relying on such a mixed basket, one will inevitably be stuck with the contradictory data.

For example, the technical indicators may show very bearish clues while the fundamental data is very bullish. Or it can be even worse, when the traders have dozens of indicators on his chart and half of them dictates to open a long position, while another half dictates to sell.

bad forex chart

Above, you can see an example of a EURUSD price chart that is overwhelmed by

  • various technical indicators: Ichimoku, MA, Volume, ATR

  • support and resistance levels

  • fundamental data

As a result, the one becomes paralyzed, not being able to make a decision. Moreover, each attempt to comprehend the data leads to deeper and deeper overthinking, driving into a vicious circle.

The paralysis breeds the inaction that necessarily means the missed trading opportunities and profits.

How to deal with that?

The best option is to limit the number of data sources used for a decision-making. The rule here is simple - the fewer indicators you use, the easier it is to make a decision.

simple forex chart

EURUSD chart that we discussed earlier can look much better. Removing a bunch of tools will make the analysis easier and more accurate.

There is a common fallacy among traders, that complexity breeds the profit. With so many years of trading, I realized, however, that the opposite is true...

Keep the things simple, and you will be impressed how accurate your predictions will become.


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