A conversation was recently started on Trade2Win on the subject of information overload. The original poster wanted to know how to deal with that particular problem.
Having been a professional market analyst working in a real-time environment, I can definitely attest to the need to be able to handle the massive amount of information that can sometimes be flowing. I had all kinds of charts, news feeds, television, emails, chats, and office conversation swirling around me contributing to the mix. It’s really easy in that kind of situation to get overwhelmed.
There tend to be two types of things that happen in that sort of case. The first is paralysis by analysis. That’s the situation where you think yourself in to inactivity. You can make arguments for why you should and should not do a trade, which leads you to doing nothing at all.
The other reaction to information overload is that you can over-act. By that I mean you become excessively reactive to new bits of information. Essentially, you reach a point where every little bit of news or price movement or whatever becomes highly significant in your mind. That leads you to feel like you have to react to it, which can have all sorts of negative consequences. I wrote about this in the post Improving your trading by thinking less a while back.
Dealing with information overload is all about being focused and understanding what information is actually important and meaningful. There is only certain information you need for your trading. You’re probably best filtering out anything which doesn’t fall into that category.
It is really easy to forget this, especially when we’re nervous about a trade. We have a tendency to want to get confirmation before pulling the trigger. That might mean looking at additional news. It might mean checking another chart you wouldn’t normally check.
I’m not saying those sorts of things are inherently wrong. You just need to consider that if those sources were important, shouldn’t they already be part of your process? If you’re reaching out beyond what you normally look at, it’s probably a sign of an issue.