Simplicity is the ultimate sophistication…
In Part 1, we saw how Alex created overly-ordered charts and diagrams with many different indicators and contra-indicators and extended his OCD (Obsessive-Compulsive Disorder) from every aspect of his life into complex trading charts and diagrams.
Nonetheless, to Alex, this was his modus operandi. It began in his early childhood when he felt his life careening out of control after the divorce of his parents. He took almost complete responsibility for the divorce and vowed that he was going to do everything possible to ensure that he did not make the same mistake again. Alex’s response to what he perceived to be HIS problem (the bitter divorce of his parents) was to develop OCD (Obsessive-Compulsive Disorder). The manifestation of this was the development of increasingly complex flow charts and diagrams which he believed would allow him to control every aspect of his life through prediction.
Now, take this one step further. Alex enters the financial markets and attempts to trade. Before he is able to place a trade, he makes the equivalent of a life pattern flow diagram. He adds technical indicators, one after the other and intersperses them with every possible news development or economic report that could possibly impact the trading on any particular day. Alex is ready, so he thinks. Alex is prepared, so he thinks. Armed with a total overload of information and unable to sort out what is real and what is not, Alex is set to trade.
Why is he writing to me? Because he is totally unable to execute. Alex suffers from trading paralysis. He has done all of the work, yet he feels that something is wrong. It is not the right time to make the trade, more news will come out which will affect the trade, he decides to wait for a better entry, he thinks he should do an option spread, just in case. Alex finds every conceivable excuse for not trading: It’s the wrong time. There is too much risk. Maybe if he just waits a little bit. Something just doesn’t look right.
Alex will not get through this situation easily, as it is a modus vivendi for him, which is transferring to every aspect of his life, including trading. What can you do ? Learn from this. To risk means taking chances in the face of uncertainty. We cannot control what the markets will or will not do. We cannot map everything out on a neat flow diagram, expect things to go our way and then panic when they do not.
The best traders are flexible, adaptable, embrace uncertainty and get out quickly when they are wrong. The best traders do not make excuses and do not blame others. The best traders do not get themselves into states of analysis paralysis. They keep it simple and remain fluid.
Everything should be made as simple as possible, but not simpler…Albert Einstein