Even after learning some techs it is difficult to not over think the whole process. I have people that trade with me that still over think things. You get rid of news. You equip them with all the foundation concepts and definitions but come time to trade. “Be careful there is an earnings report today and there is a gap up there.” The gap becomes a point of bias, even though the gap is well above the price action which has been distributing. Distribution alone says it will dump but the fear of the report says it may pop.
People study technicals. Read everything they can about it, only to discard its full use by mixing thought process that no longer lends to logic but funnymentals. Some people pay $3k to go to a class that teaches them technicals and leave again to blame the government announcements.
What is causing over thinking? Fear. Simple as that. And due to this fear. Logic goes out the window. What is the cause of this fear? Conditioning. From what? News and experts. News attribute market events to other events. Experts and people whom you would pay to provide you a service perpetuate the notion that trading is a nebulous undertaking. I know a former broker with a Series 7 certification who never really understood how the markets move the way we’ve explained it to him. How was he thinking before? Same as everyone else. Fear the news. And then trade the news. Not very far fetch if you think about it. How many people do you know have degrees to do the work that they do but you know for a fact they have no clue. It is just a piece of paper that says you are trainable. Why do you think doctors go through the hands on training that they do before they can practice? Would you like a plain old “degree holder” to operate on you?
How do you counter the fear. Well you need granular understanding on how the market moves. So that there is no doubt that 1+1=2. The process of accumulation and distribution is a description of momentum. The understanding of levels and legs provides you the entries,exits and stops. All crucial to making a solid trading decision. Identifying the actual price using the dojis further simplifies the thinking process. Accumulation and distribution can be identified through visual queue. Such visual queues no longer need further thinking on your part when you see them because you understand by the definition provided what the granular meaning of each. Do you need to think about it over and over again? If you do. Guess you need to study more.
Cognitive Bias Wikipedia.Com Definition
A cognitive bias is the human tendency to make systematic errors in certain circumstances based on cognitive factors rather than evidence.
Understanding accumulation and distribution provides you the evidence you need to make a decision. But people allow their fears to get the better of them. Understanding the legs that due to the accumulation distribution provides you the concrete evidence of the direction the price will go. What more can you ask for? Logical and consistent. Just what you want to make a non-bias, fact base trade. Is it really this simple? If you took the time to know it know it, you tell me.
But fear is a tough foe. GI Joe always said. “Knowing is half the battle”. People are equipped with the knowledge to understand the market but are not necessarily adept to those knowledge. Do they know it know it? No. Can they recognize it? No. But when it is pointed out to them. Oh yeah clear as day. O now I see it. Ergo … After the fact. Everyone knows what an ascending wedge is but can’t recognize or even quantify the exact conditions that make is a reliable chart pattern to use. Do you? What is the other half of the battle? Execution. Can’t execute if you are filled with doubt.
Why do you over think?
Because you don’t know it know it.