Information Overload:
I must admit that in past articles I have recommended that traders/investors conduct their own research and combine that with technical analysis, market conditions and sector trends. However, belief that more information is better can lead to information overload.
From the talking heads on CNBC to the news headlines flashing across the trading screen to the online chatrooms, newsletters, hotlines etc., we are continually inundated with confusing information and trading tips.
As confusing as this overload can be, you don’t need to make sense of it all to make money from price fluctuations in the market! All that is required is an understanding of crowd psychology and probabilities. No matter how much information you accumulate and sift through you will never have all the information available.The best advice for beginning traders is: Forget all the conflicting information being disseminated out there. All that is needed is a price chart. Leave it to someone else to worry about all the news. The market’s collective assessment of that information is reflected in the price action. The fact of the matter is that everyone has the same information and the individual trader will never have the resources to secure better information more quickly than the large brokerage firms.
You must learn to understand how markets work and what drives them. Trusting your hard-earned capital to a mechanical system is a recipe for disaster as most traders do not possess the intestinal fortitude to stick with such systems through inevitable drawdown periods.
You are never going to have all the information and will be forced to act on incomplete information.
Not every move can be predicted. There will be situations where your best laid plans are adversely affected by random unforeseeable events.
As a result losses are an unavoidable, integral part of trading. Getting stopped out of a trade with a loss, contrary to popular belief, is a good thing (assuming you have a winning approach and solid trading plan). It tells you that your trade is not working and conserves your capital for later use when another (hopefully better) trading opportunity presents itself.
