Wednesday, December 13, 2017

7 Ways to Avoid Analysis Paralysis | Trading Psychology

Today’s Trading Psychology question of the day…

“How do you avoid analysis paralysis?  I lost a lot of money at the beginning of my career with a trading robot, and although I feel like I have a good trading strategy, I seem to worry about every little detail and I seem to miss the good trades and chase after the losses.  Do you have an advice on how to stop worrying so much while I’m trading?”

Great question, and as always, I appreciate you guys posting comments with new ideas for psychology topics, so thank you.

Paralysis by analysis, I know the words to this song quite well, I have definitely dealt with this in my career, and I’m sure a lot of people watching this video are going to deal with this at some point as well.

In today’s psychology lesson, I’m going to address performance anxiety, also known as “analysis paralysis”, and give you a strategy with seven (7) tricks to overcome it.

But before I go into today’s lesson, I want to remind you to subscribe to this YouTube Channel, and make sure you adjust the settings in YouTube to alert you ever time I post a new video… and if you really want to stay in-tune with what’s going on here at SchoolOfTrade, join our mailing list on the homepage of our website, or in the upper-left corner of my blog at

Performance Anxiety… also known as “analysis paralysis” is one of the most common problems that we face as traders.

Simply put, performance anxiety occurs any time our thinking about performing gets in the way of our actual performance.

In my experience, performance anxiety happens to rookie traders just as often as it happens to experienced traders.

Rookie traders worry about trying to do everything, and because of that they do nothing correctly. 

Experienced traders often make losing streaks worse by worrying about taking another loss, and in the process wind-up missing all the good trades along the way. 

Or a trader could be so worried about making money that they end-up cutting their winners too early, and they never make any real progress in their account. 

Nobody’s really safe from performance anxiety, even the best traders in the world deal with it, and I’m going to give you a simple strategy to overcome it today.

First, as we’ve already discussed in previous lessons, our emotions are healthy, but what is unhealthy (and unproductive for our trading) is when we attach our own interpretations to those emotions, allowing the stress of trading to quickly become dangerous distress.

An example of this came when I was early in my trading career… I did quite well in the first few weeks of my trading career because I was under the assumption (like most rookies) that trading was going to be easy…and I caught a bit of luck with a strong trend at the same time.

With a high level of confidence and optimism, I started my trading career on a hot-streak, following the rules of my strategy with confidence, and making money in the first two weeks…

…but that didn’t last long…

After a few losses when the price-action went sideways, I began to second-guess myself, looking for trade set-ups that were NOT in my trading plan, making the typical rookie mistakes of letting my losses run and cutting my winners too quickly….and all of a sudden, the same stress that I had felt at the beginning of my career turned into distress and quickly became anxiety as I watched my account start to get smaller every day that I traded.

At that point in my career, I viewed every loss as the market trying to take MY money, and I took it personally.  I soon became so concerned with avoiding losses, so worried about the results on each trade, that I never took any trades, and the trades that I did take wound-up being losses… a frustrating experience that I know a lot of you have dealt with before as well.

Image for a moment…

If Tom Brady (the GOAT)  worried about every pass he through to a receiver.  Imagine if Lebron James worried about every shot he took.  Imagine if an actress worried about what the audience was thinking when she was performing. 

All of these performers… they’re just like traders…they can’t worry about the results, they have to focus on executing their skills correctly, because if they don’t, they won’t execute correctly, and then they will REALLY have something to worry about because the results won’t be very good.

If you learn anything from this video today, make sure you remember this statement…

If you focus on the process you will get good results, but if you focus on the results you get bad execution which leads to poor results.

This is what new traders need to do… use a proven trading strategy that covers all the bases; it uses the correct position-sizing and risk-management, with simple entry and exit rules, so that all the trader needs to do is focus on the execution of the strategy… then… worry about the results at the end of the WEEK, not the end of the day.

Remember that lesson I did a few weeks ago on the best daily goal for a trader?  The best goal is something that I can control, not something that’s outside of my control. 

Trading is a performance skill, and in order to be a great performer, you need to focus on the process of performing at the highest level possible, rather than the profit or losses that come as a result. 

In other words, we can’t let performance anxiety control our trading.

We have to be confident that there will be winning trades and there will be losing trades, but in order to have that level of confidence, we need to use a trading strategy that prevents one or two losses from hurting us, and make sure the winners we take will more than make-up for the small losses.

This is why we always say in trading... “cut your losses quickly, and let your winners run.” 

The most effective way to remove performance anxiety, is to remove the threat of a loss. 

Losses are going to happen, but when the losses are small and the winners are large, subconsciously our minds can easily move through some losses, knowing that the winners are right around the corner.

If you’re cutting losses quickly and letting your winners do the work for you, you won’t have any trouble with waiting patiently. 

But if you’re trading a strategy that is NOT proven, or uses large amounts of risk, or you simply haven’t invested the time to learn the strategy because you’ve placed unrealistic expectations on your performance, then I won’t be surprised if you’re suffering from performance anxiety because deep down inside, you don’t trust yourself or the strategy you’re trading.

How to Avoid Performance Anxiety

So, how do we avoid this performance anxiety?

Personally, one of the most effective things I’ve done to avoid this type of anxiety is to always pay close attention to my losing streaks

Look back at your journal… find your worst losing streak… those days when you can’t even BUY a winning trade…and tell yourself… “if I can survive that, I can survive anything”.

I would also recommend using that losing streak as an opportunity to make some small changes in your trading plan to make sure that you lessen the impact of a similar situation in the future.

Think about it this way… “Next time I take a trade…how can I cut my losses faster so that I can earn more profit from the winners?”

Cutting losses quickly might mean you use a smaller stop-loss on each individual trade, or maybe it means that you only allow two losses per day, or if you’re like me, any time I take two back-to-back losses I take a 20-minute time-out and then I get back to trading, but if I take a third loss in the same day, then I’m done for the day.

When I think about “cutting losses” quickly, I think specifically about those trading days where nothing seems to work.  You know what I mean, those days where the price-action stinks, or you’re not feeling 100%, or you’re distracted… something’s off.  Think of ways you can identify those days and cut them off before they do too much damage.

Remember, confidence is built, not by removing the losses, but knowing that a loss can’t stop you from reaching your weekly goal.  All you need is a trading strategy with all the correct components I described earlier, and the right mindset to make it happen.

Some tricks that I’ve used to deal with performance anxiety are:

1.      Use Visualization to “see” yourself executing the right trade, at the right time, using the right criteria that will most often produce a winner. Just like Tom Brady can visualize throwing a perfect pass for a touchdown in the end zone, traders can do the same thing as well.  Think of this as self-hypnosis, taking your mind off the execution of the strategy, and allowing your practiced skills to work for you.
2.      Listen to your body, and when you feel your stomach start to churn, your palms get clammy, your heart rate begins to increase, you know you’re suffering from this type of anxiety, and then take a step back, relax your mind, focus on your breathing, read your rules, visualize the trade, and allow the feeling to pass.  Ultimately, you’re going to learn how to keep your mind under control when you feel like you’re out of control.
3.      Focus on the Present:  Avoid the common mistake of thinking about prior losses, or worrying about the next loss.  Focus your energy on executing the next trade correctly.
4.      Reduce your position size when you have a losing streak, and then increase the position size when things start to turn around for you again.  The markets go through cycles, and it helps to remove as much risk when the cycle turns against you, which will allow you to minimize the treat to your account balance.
5.      Market Replay to automate your skills: Another effective way to curb performance anxiety is to make sure that you can execute your trades with your eyes closed, knowing the patterns like the back of your hand.  You remove a lot of fear if you feel like you’ve seen this situation a million times before, and an easy way to practice pattern recognition and the automation of your trading is to use a replay tool, such as the one that comes with Ninja Trader Software, which I use in my own trading.
6.      Reframe the situation:  If you’re suffering from performance anxiety, remind yourself that all you need is 75% winners and you are in the top percentage of the best traders in the world.  Use the old baseball analogy that says you only need to bat .300 to make it into the hall of fame.  Remind yourself that (as long as you’re trading a professional strategy) you don’t need to be perfect, so stop worrying about being perfect.
7.      Don’t Risk Money You’re Afraid to Lose:  I think we’ve all heard this before, but it’s true, you’re going to have horrible performance anxiety if you’re trading with money that will put you in a financial bind if you take some losses.  Make sure you separate your trading capital with your personal capital, and always plan for a rainy day. 
o   I have a similar conversation with my clients when they ask me about quitting their day job.  I tell them, if that job allows them to put food on the table, and more importantly, it allows them to trade without the fear of losses, and their schedule allows them to trade for a few hours ever day, then keep the job until your trading income can MORE than provide for your family, because if you make the job too quickly you’re going to put yourself in a position where this type of anxiety will immediately affect your decision-making, and it will be even hard to succeed.

Boy that time flies when you’re making progress…

We’ve covered a LOT in this psychology lesson, so let’s do a quick recap.

Performance anxiety occurs any time our thinking about performing gets in the way of our actual performance.

As I said earlier, “If you focus on the process, with a professional strategy, you’re going to get good results, but if you focus on the results, then you get bad execution which leads to poor results.”

Most traders suffer from this performance anxiety because they’re afraid of losses, which is usually a bi-product of either trading a strategy that doesn’t manage risk properly (losses are too big), or lack of experience trading the strategy (you haven’t taken enough trades to trust it yet).

The most effective way to deal with Performance anxiety is to look closely at your losing streaks.  Find ways to cut those losses faster, so they don’t hurt you as much in the future, and use your trading journal to remind yourself that, although losses are part of trading, they won’t kill you, if you’re using a professional strategy.

Wrapping things up… I’ve taken too much of your valuable time…

I hope you found a ton of value in today’s trading psychology lesson…

…and I would love to hear from you about additional topics that you’re struggling with as traders.

Do me a favor…drop me a comment below this video with any topics you’d like to see me cover in my next psychology video…

…make sure to give me a thumbs-up if you found value, subscribe to the channel if you’re not already, and please don’t forget to share this video with a friend who can benefit from this information as well.

Guys…It doesn’t matter what market we trade, or the strategy we use, even the most experienced & successful traders battle with their emotions when there’s money on the line.

And don’t forget, you can find me every morning @ 8:00am EST working hard in my trade room with all of our members here at, I have a great free trial on the homepage of our website, I publish my Nightly Newsletter every evening on my blog before 8:00pm EST, and I’m excited to see you again soon on my next trading psychology lesson.

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