How To Cure Analysis Paralysis In Your Trading

A big problem for retail traders is having too many technical levels placed on their charts.

When traders place lots of different things on their charts they can become confused as to what is actually happening in the market, this can lead to bad decisions which typically end up with the trader losing money he could have saved had he made a few simple changes to his habits.

I used to be someone who placed all the technical levels I watched on the charts at the same time.

This was back when I was trading price action at support and resistance levels, as anyone who has experience with support and resistance levels knows there are different levels on different time-frames and each level represents a place where the market could potentially turn.

For me this meant I needed to mark all the possible levels which I believed had the capability to cause a reversal, so what I would do is go onto the daily chart and mark all the levels and then move down to the 1 hour chart and mark all the levels ( in a different color of course to make things easier ).

When it was all said and done my chart looked something similar to this…….

image of lots of supply and demand support and resistace levels

Now I’ve placed some supply and demand zones on this chart to further illustrate the point I’m trying to make.

It’s obvious from the image how difficult it can be to make a decent analysis of where the market may be heading in the future with so many levels present. If each technical level presents the opportunity to get a trade placed then not only am I going to be taking lots and lots of trades but I’m also going to get really confused as to what I should do upon the market hitting each level.

More Tools = More Things To Think About

 

The more things you need to think about in order to make a trading decision the harder it will be for you to actually make a good decision.

Aviary Photo_131061775890192137

Here’s the image we just looked at.

Now it is going to be very difficult for me to make a good trading decision with so many things marked on the chart, any bit of analysis I do is going to require me to think about lots of different things which are probably not important for the current market direction.

For example lets say I planned to go short at the supply zone but decided not to because I thought the market would hit the daily resistance level first.

Eventually the price moves up into the supply zone and begins to make a substantial move lower, at this point I’m disappointed, this was the trade I was going to take but backed out of because I thought the market had a higher chance of hitting the daily resistance level. Had I never marked the daily resistance level on the charts I wouldn’t have been able to come to a conclusion on the future price direction based off a technical level which the market had not yet come into contact with.

If I did end up taking the supply zone trade then I could have still had problems due to the levels found below.

Lets imagine when the market reached one of the orange support levels it produced a bullish pin bar, this says to me the price is likely to reverse and the profit on my short trade taken from the supply zone trade is probably going to decrease. I decide to close the trade thinking I’ve made a good decision but then soon after the price drops well below the pin and I miss out on a significant amount profit.

This would never of happened if the support level wasn’t marked or I didn’t assume I already knew what was going to happen before it happened.

Something else which can be a problem when you’ve got lots of levels marked on your charts is knowing which levels are more important than others.

For example what is more important, the support level or the demand zone ? Are the 1 hour support and resistance levels more likely to turn the market than the daily levels ?

These are the types of questions which will pop up when you’re analyzing the market with all these levels placed.

If I only had the supply and demand zones marked then I would be relating all of the price action in the market to the supply and demand zones, in other words my analysis of the future market direction will only be based on what is going to happen upon the market reaching the supply and demand zones, with the support and resistance levels also marked, it means I have an additional thing to think about which is going to cause me problems in my analysis.

In some cases having so many levels marked on the charts can mean you don’t end up taking a trade at all.

You end up over analyzing what all the levels mean for the future market direction and become stuck in what action you should take. You’ll look at one technical level and think “the price may turn here” then look at another level and think “but it may turn here too” so in the end the original decision you were going to take has been influenced by other levels which you have determined are going to have some effect on the market direction in the future.

The problem is the future hasn’t arrived yet, these other levels have not even been reached by the market yet your going to include them in your decision-making because they’re already marked on your chart.

 

A Simple Fix

 

If you have a problem with placing lots of technical tools on your charts then you’re in luck because fixing this issue is simple….

Stop marking everything on the charts at once.

It sounds simple but it can be tough for traders who have always traded with everything marked on their charts to suddenly get rid of all the lines they use but I can guarantee it will be better for your trading.

For example lets say you trade the 1 hour chart, what purpose does it serve to have daily support and resistance levels which are far away from the current price marked on your charts ?

It’s the same for supply and demand zones, why have the zones which are not close to the current market price marked on the charts ?  All it’s going to do is make you think about what could happen if the market returns to the zone which is not important for what is happening in the market right now.

Now I understand everyone has their own way of trading and for some it may be difficult to remove 90% of the tools they place on their charts, so I think the best way to go about it is to remove one thing at a time. Don’t just go and take everything off, take the things which aren’t really needed off first, then as you begin to see improvements in your decision-making remove some of the other levels.

It’s much easier to remove more levels once you see they have had a positive impact upon your trading, but you need to give yourself time in order to see these improvements. If you take a load of tools off and expect that right away your instantly going to begin making awesome trades then unfortunately you’re going to be disappointed, because although you’ve removed a lot of the tools, your mind is still in the habit of analyzing all the different levels so initially it may make you more confused as to where the market is going to move than you were when you had all of the levels placed on your charts.

As you begin to learn how to adapt to only having a few levels you will find it easier to make better trades, there will be less to analyze which means you wont be thinking about things which have not occurred yet and you can remain focused on the current price action in the market.

Summary

 

If you take things one step at a time and remove levels bit by bit,  eventually you’ll realize there wasn’t much point having them on your charts in the first place and it’ll make it easier for you to start taking away some of the other levels you tend to have placed. In the end by removing the levels I believe you will see a dramatic improvement in your trading as you will find it much easier to think clearly about what is happening in the market.

2 comments

  1. Phil

    Wow, looks like upon reading this I was looking in the mirror…
    “…or I didn’t assume I already knew what was going to happen before it happened….” How familiar and stubborn I was, thinking I know where we go…

    I mainly trade the M15 but like to move up frames. Do you advise to only markup the M15 supply and demand zones?

    Let’s see what I can get rid off from my charts… Lots of lines… Thanks for this eye opening article!

    • ForexMentorOnline
      Author

      The funny thing is Phil the email you sent me was the inspiration for this article, I figured its a fairly common problem so its best if I give my two cents on it. Got your new email by the way, had a quick look at, but will spend more time this weekend going through it and giving you my response.

      Have a good weekend.

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