Analysis Paralysis

There are many reasons why people fail at trading. I would be hard-pressed to identify any one core cause, but Analysis Paralysis is certainly in the top five.

This is where the trader has too many indicators posted on their charts, effectively obscuring any intelligent view of the market. I have seen information overload so bad that it actually blocked the price candlesticks themselves. Of course, that trader couldn’t place a good trade to save his life.

Bear in mind, all indicators show us history; nothing can possibly predict the future price action. The closest we can come to that is seeing where the price is now through the lowly candlestick, which tells us that vital information. What we try to do is position the indicators so we can best assess where the price may likely go based on historical trends. To forecast price with any clear accuracy relies on the learned skill of the trader to assemble and interpret the indicators in a meaningful fashion.

We trade only one stock, the  SPDR S&P 500 ETF Trust (NYSEARCA: SPY), but we need to trade it well. We use only a handful of timely indicators spread across three time frames. When mastered, these measures provide important data that interpret price action to give us high-probability trades, reducing the ‘gambling’ effect of our positions. This also all but eliminates the need for any corrective action, although nothing is 100% foolproof.

Mike, a former student from New Jersey, took our course years ago and became a very good trader, in fact. Then, some time later, he contacted me to say my system no longer works for him. I told him it still works for me but that I was curious as to why he was having issues. We eventually determined he had installed on his charts other indicators than what I taught him. Darvas boxes, Parabolic SAR Crossovers, Price Volume, RSI, TTM Squeeze, who knows what else… “Mike, where’d you get all that clutter?”

“My friends told me about them, so I thought they’d be useful!”

“Remove every single one of those other indicators and toss them in the East River! All unnecessary,” I retorted.

Turned out, Mike was waiting for all his highly recommended indicators from well-meaning friends to line up before he would enter a position. Trouble was, by the time they all lined up, it was the end of a trend and no longer his friend when he set up for a loser. Once he cleaned up his charts, his fortune instantly changed back to profits.

Not to place blame, heck, I was one of them, until I realized that too many indicators could never work. What a good trader needs is a very few but effective gauges that can provide different but relevant data. How many ways does one need to see where the stock was? It’s not where price was that is as important as where it is going. We use history to give us clarity but we also need cleaner charts to forecast price action. There’s a reason they call it analysis paralysis.

I personally keep it simple with an array of exponential moving averages, support and resistance levels, pivot points and chart patterns on multiple time frames. That’s it. Anything else is clutter. My associate, Jon Johnson, incorporates Fibonacci and pitchfork in his study but anything else merely clouds his vision. This is one key reason for our success. Less is more.

These are some of the things we discuss in our Trading Room. You may want to become a member if you are not already.

Perhaps you may not have the time to join us every morning. If that’s the case, consider our DTS Signal, where we text you a specific option to trade for a 5% same day profit. Click the links to find out more on this program that works almost 90% of the time.

Another service is our Pick of the Day, for a particular option to be bought at market open for another near 90% success rate.

For less than a daily small cup of joe, get up to speed with our Inner Circle, consisting of our morning Market Analysis, follow up report and Weekly Meetups.

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Let us help you clean up the clutter and bring clarity to your charts.

Great trading!

Hugh