The astute trader knows how to process multiple inputs, yet remain calm and decisive. With essentially endless sources of information to consider, it’s easy to experience information overload. If you try to process and digest more information than you can handle, you’ll experience frustration and anxiety. If you aren’t careful, you may get so overwhelmed that you will be dazed and confused, so confused that you can’t focus on developing a viable trading plan. It’s crucial that you reduce the strain and trade decisively.
In the information age, it’s tempting to believe that if we could just process every possible piece of information, we could find the ultimate trading plan. This belief goes back decades, to the time when fundamental analysts tried to discover undervalued stocks. These days, there’s a new version of this belief that the Holy Grail lies in the ability to discover secret information: If we could just find a novel indicator or signal, we could anticipate the masses and sell before the trend turns. If we could just analyze and digest every single piece of information at our disposal, we could develop the ultimate trading plan and win big. Many traders think that if they could find the right combination of information, they could anticipate the markets with unfailing accuracy. They work under the assumption that their information is “pure” rather than messy, and that if they think long and hard enough, they will uncover a secret code that will unlock the mysteries of wealth and lasting financial success. The odds of finding the Holy Grail are low, however.
Market information is far from perfect. There’s no sound reason to sift through all of it. Consider just a few sources of information: Media coverage, analyst earnings estimates, annual reports, and news about potential adverse events. You can look through a lot of this information to formulate a trading plan, but even if you were a super-brain who could scrutinize all of it, it still may not help. Market factors may not come together in the way that you had planned. There’s no sure way to know how the market will react to news, for example. Stock prices may or may not reflect media reports or a company’s announcements. Sometimes market participants believe the hype, but sometimes they do not. It’s not worth the time obsessing over it. All you can do is look at as much information as you can, and accept that all you can do is try to devise and implement a reasonable trading plan. It won’t be foolproof and that’s all right. There’s no such thing as a foolproof plan, and you won’t find one, no matter how much information you process.
No human, or computer, can sift through all the information we have available these days, and there’s no need to. You merely have to do the best you can, and accept the fact that it is impossible to look at all of it. Eventually, you have to stop analyzing. You have to trust your intuition, make a trading plan, and follow it. Don’t get overloaded. In the days before computers and the Internet, traders made money just by reading the tape. It still works today. You don’t need to make things overly complex. Sometimes, it is better to simplify matters. Stay calm. Develop a trading plan, and trade decisively. It won’t work all the time, but it will work enough of the time to make you profitable.