- Overthinking affects trading when the trader does not have the discipline as well as the patience that is required to trade.
- It is a poison that will take a toll on your mental as well as physical health.
- Constantly worrying about something will definitely change your personality and way of thinking and will also inhibit productivity.
- If this is not taken care of, then it will negatively affect your social as well as private life.
- This will eventually result in the lack of trading skills.
- A skilled trader is someone who is always aware of the present situation and will not think much about the future possible outcomes.
- If you plan to become a successful trader, then you will have to be present in the moment.
How does overthinking affect trading performance?
Overthinking is nothing but a habit of thinking too much about something or someone to the point where it is going to have a negative impact on them.
Some of the causes of overthinking in trading are as follows:
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Losing streaks
- Traders have become highly impacted by their recently failed trades and due to this, they will trade without discipline to recover their losses.
- For example, if you are feeling guilty about your recently failed trade, you may think that this is the most profitable trade and because of this, you may end up trading with heavy quantities.
- But you will also have to keep in mind that the previous trades will not influence your present trade.
- So, you need to stop thinking too much about this and should not get over influenced by your previous losing streak.
Not having faith in your strategy
- When traders over think, they will start to doubt their strategy and will also start to add some more indicators on the chart which will confuse them.
- Many traders will tend to change their strategy when it fail sometimes.
- This type of over thinking will cost a lot of damage to the account of the traders.
Not having control over emotions
- Many new traders will commit this mistake because at the beginning they don’t have much control over their emotions.
- Due to this, during trading, they will torture themselves for not entering into a certain trade or even exiting early from the given trade.
- Also, you will not be able to catch all the moves of the stock market.
- So, you should not waste your time thinking about all those things and just try to follow the process.
Fear of losing money
- Many traders are thinking about the consequences of losing money while trading and with this, they will end up missing all the good trading opportunities.
- This problem will indicate that either you are trading with too many quantities or that you are not comfortable with accepting the loss.
- As a trader, you will risk the money, and you should also accept the fact that you will make a loss in your trading career.
- But how much you will lose in your losing trade and how much you will win in your winning trade will matter the most.
- You should just not risk more than a certain amount that you are comfortable with losing on any single trade.
Trading based on the news
- This is the main reason why many of the traders will blow up their accounts.
- Instead of trading that is based on the news, you should just trade with the help of price action because price action will reflect all the information on the charts.
- There are also thousands of factors that can affect the market at any given point in time.
- Trying to trade based on the news is basically the same as trying to predict the market.
- You can never predict the market, but you can simply analyze the footprint of the market with the help of the price action.
- Price action will always show the impact of any news about the market before it actually comes out.
- So, it is always better to focus on developing your reading skills of the chart rather than just trading blindly based on the news.
Trying to be over smart
- Many traders think that they can beat the market by doing more research or by just learning a new trading strategy.
- However, this is just not the truth.
- You cannot predict the market regardless of how much time you will spend analyzing the economic data or studying the new trading strategies.
How to stop overthinking and start trading?
There are some of the many ways that will help you to stop over trading and will help you to focus on trading.
Some of the ways are as follows:
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Have a detailed trading plan
- The most important thing that you can do to stop over thinking and to start trading is to make a trading plan which will also include every single detail of your trade.
- Your trading point will guide you to follow the process.
- You should also refer to your trading plan every day.
- It will help you to remember what needs to be done and will also help you to stay on the track.
- Your trading plan will also help you to maintain discipline, and with discipline and focus, you can eventually become a successful trader.
Practicing the self-control
- The hardest part of trading for most of the traders is self-control.
- One of the most effective way to implement the same is to make a trading plan which will include the time for when you will be in front of the charts and when you should avoid being in front of the charts to stop over thinking.
- You will not believe this, but sometimes you will have to leave your trading desk for a longer period of time so that you will not overthink and start to risk more money.
Eliminate your fear by taking all the things into consideration
- You cannot entirely control the market.
- But there are certain factors that needs to be controlled such as risk per trade, stop loss placement, and position sizing, etc.
- If you will be able to take care of all these things while trading, then you will automatically eliminate your fear of losing money.
- In trading, you should be prepared to enjoy the profit, but you should also be prepared to take a loss on any trade.
- The most effective way to eliminate the fear is to control your risk by considering all the things and also by following proper risk management techniques.
Hold your winning trades, cut your losing trades
- Many of the new traders will do just the opposite of the same.
- They will hold their trades with the expectation of profit but end up losing more by cutting their winning trades fast with the fear of loss.
- Successful traders will do the exact opposite of the same.
- They will stick with their trade when they are in a profitable trade, and they will also cut their trades very fast when they are at a loss without any ego.
- To become a profitable trader, you will have to limit your losses and should hold your profits for as long as you can.
Conclusion
Trading success will depend upon 3 factors, such as confidence, state of mind, and your trading skills.
Frequently Asked Questions
Q1) How to stop overthinking in trading?
Establishing clear trading rules and sticking to the predetermined strategies will help you to stop overthinking in trading.
Q2) Why is trading hard?
Becoming a trader who is consistently profitable is rare, and this fact will hinder one from making a firm commitment.
Q3) What is the biggest fear in trading?
Fear of losing money is the biggest fear in trading.
Q4) Why do most of the traders quit?
Absence of a clear trading strategy.
Q5) What is the secret to successful trading?
Taking a step back from the market is the main secret to successful trading.
About Us
Nifty Trading Academy is our academy where we teach you about the stock market as well as technical analysis. We also provide live trading sessions and upload blogs for the same.