Introduction:
Welcome! Below is a rough transcript of the podcast [Traders Mastermind - Are you overthinking your trading?] by [Mark Holstead]. I’ve done my best to summarize the key points and insights shared in this episode. Whether you're short on time or simply looking for the main takeaways, this summary will help you quickly grasp the core ideas and highlights. Let’s dive into what was discussed.
**Definition of Overthinking in Trading**: Overthinking is analyzing every possible outcome of a trade, whether fundamental, technical, or otherwise.
**Desire for a No-Loss Trade**: Traders often overthink to find a perfect trade with zero risk, which is unrealistic.
**Markets Are Not Solvable**: Even investment banks with vast resources cannot fully predict market movements.
**Risk is Inevitable**: Accepting that all trades carry risk makes trading easier.
**Paralysis by Analysis**: Overanalyzing leads to either missing trades or overconfidence in a single trade.
**Key Trade Questions**: Instead of overthinking, traders should ask:
- Is there momentum?
- Are there red flags?
- Where is the risk?
- What is the position size?
**Trading Should Be Systematic**: Having a clear checklist helps in avoiding overthinking.
**Overthinking Leads to Three Problems**:
1. Missing trades due to excessive analysis.
2. False confidence in "perfect" trades that still fail.
3. Belief that more rules and thinking can eliminate losses, which is false.
**Intuition vs. Overthinking**: Allowing intuition to develop is more beneficial than excessive analysis.
**Practical Exercise**:
- Create a structured checklist.
- Log missed trades to see if they would have been profitable.
- Reduce overanalysis and focus on execution.
**Final Advice**: Manage risk, avoid excessive thinking, and focus on disciplined execution.
**Here's the rhetorical metaphor examples that explain the idea behind "Are you overthinking your trading?":
Don’t turn your trading into a maze; sometimes the path should just be a straight line.
(Don’t overcomplicate your trading — often, simple solutions are the best.)
Think of your trading like a garden; overwatering can prevent the flowers from growing.
(Constantly trying to tweak your trades may harm them — sometimes it's better to let things take their natural course.)
Trading is like a wave; instead of forcing things, let the wave carry you.
(Rather than struggling to control every aspect, it’s better to move in harmony with the market.)
Here is the transcript of the podcast:
Let's talk a little bit about overthinking. So overthinking really to me is is defined as your thinking about every single thing that could go right or wrong with the trade you're about to take. So that could be, fundamental. It could be technical. It could be anything.
And really this comes from, you trying to get into a position where you have a no lose trade. You trying to convince yourself that every single thing is right about this trade and it's not gonna lose. And unfortunately, as we know, you know, that's never the case. It's never the case where we are in a position where we have a no lose trade. If it was, we just wait for that.
We'd stick, you know, the full size account on fully margined and happy days. But it doesn't work like that. We know it doesn't work like that. So an overthinking as well is you're trying to really really solve the the the equation of the market which isn't solvable. There's guys over, you know, with investment banks with far more resources than those guys with far more compounded brainpower, and they can't solve it.
It's not a solvable equation. Sure there's some, HFT funds out there, but they're trading on a on a different edge. You know, and they're sure there's some some fund managers who do who do well year after year after year, but they're they're still restricted in some way. They're still kind of restricted and, go through levels of poor performance and go through stagnation and go through growth and just like a normal trader does but just on a larger scale. So I think once we're at peace with the fact that it can't be solved and there's gonna be risk in every deal that we take, life becomes a little bit easier as a trader.
You know, because overthinking us basically saying, okay. Well, let's imagine a breakout scenario. Okay. Market's pushed up to a key level, good opening drive. It's already gapped up.
Got all the ticks in the boxes, and it's about to break through weekly high. Plenty of room to move, breathe on the on the ATR, etcetera, etcetera. And you kind of sit there and you go, okay. So it's gapped up. It's got this.
Ah, yeah. But, you know, we're quite stretched on the daily chart. We're quite overvalued. Imagine you're trading index. It's quite overvalued at the moment.
We haven't pulled back to the mean for a while. It might be quiet because it's, you know, Tuesday or whatever it is. And you start to think of all the different things why this trade won't work. And even why this trade will work. And you're thinking of literally every single damn thing that's almost irrelevant.
You know, your ultimate if your trade idea is, hey, I wanna trade this breakout because there's momentum. The only questions you have to ask yourself is is there momentum? How do you define momentum? Is that persistency of trend? Is that strength of the trend?
Is that volume? Is that a time of day? Is that all those other things that are really probably what you look at if you're trading momentum from an intraday perspective or not? And that's the only question. And the other question is where's the risk in the deal?
Where's the risk in the trade? Okay. My risk is this. What's my position size? It's this.
Then have a go at it. Take the trade. You know, overthinking the trade too much just gives you that, you know, paralysis by analysis or whatever the phrase may be. Analysis paralysis, I think is exactly the phrase. But the point is when you're over analyzing every little thing to do with the trade, you number one, convince yourself not to take the trade or number two, convince yourself this is the best trade since sliced bread and I should be troubling my size, quadrupling my size, 10 x ing my size, which is never a good thing anyway.
It's more a case of, hey, when you get into the position of, you know, I don't know if this trade is gonna work, and I actually don't care. And that's a funny thing to say, but you should be in a position where I actually don't care. I don't care because the risk is x. I'm prepared to pay x to find out if I'm gonna make three x. I think this has got the right attributes.
Everything seems to be lining up for me. There's no reason not to take the trade. There's no big red flag. And this is why it comes down to kind of, you know, just having a few things to look at. And and and saying yes, yes, no.
Okay. We're ready to go. You know, we're not overly analyzing stuff. And again, if you go back to that analogy of of a kind of a breakout type trade momentum type trade. Is there a momentum?
Yes. Are there any red flags? Like are we are we at lunchtime if you're in intraday trading indices? No. Because if you were, then maybe you wouldn't take it because it's unlikely to be a breakout or less likely to be a breakout.
And that might be it. You might have two, three checks as it were. Are are they all green flags? Yes. Or have I got any red flags?
No. Okay. Pull the trigger. Let's go. Let's risk the risk the couple of thousand bucks and see where we go with it.
And and and and that's really where the thought process should end. And I think that especially as a lot of people who come from successful career backgrounds, you know, higher high levels in in in their corporation or running successful businesses or very highly skilled jobs, you know, that's that's when the intellect helps that person achieve and get to that point. But actually, it's almost a hindrance in trading because, you know, overthinking and and using that intellect in the trading arena whilst you're on the fire, so to speak, is generally a hindrance. Where that comes into play and the intellect and the strategic thinking, and the resilience and all that kind of other stuff. You know, that comes in with the planning, that comes in with the structure, that comes in with, you know, all the other aspects that we're trading, the review, the scanning, the stuff.
That that where that ability can come in. But actually in the heat of the moment, you you know, drawing on, your brain to try and decipher this is a good trade or not is is detrimental in fact. You know, the simplest and best trades are, hey, this is the what I think the risk order ratio is on the deal. This is how much I'm prepared to risk. This is the nature of the trade I'm taking.
It's momentum ignition type trade. This is the market I'm taking it. Yeah. Well, it's sort of almost, yeah. Why not?
Let's see what happens. I'm pulling the trigger on and going, hey, if it doesn't work, it doesn't matter because, you know, my my thesis really is that if I pull the trigger enough times on this type of trading, this type of environment, then I'm gonna make money. And and then I'm really believing that. And there's and there's a confidence issue that comes with that, and that's probably not a topic completely to to discuss. But it's, you know, it's one of those things, guys.
I think overthinking, we we think that if we we think that if we think more about the trade, you get what I mean. If we if we're really digging down and intellectually trying to solve the trade, we think that that's gonna yield better results. But in actual fact, it doesn't because one of two things happen. Number one, one of three things happens. Number one, you analyze it so much you do nothing.
And by the time you decide to pull the trigger, the thing so far gone, you're chasing it, you're FOMO ing ing, you got an awful fill, the risk order ratio is all skewed, and the dynamics of the trade has shifted completely. Number two, you go and you think this is the perfect trade. You get stopped immediately, and you think, well, hang on. Why? Why is that?
I mean, all these things lined up. It was the perfect scenario. It was the perfect this. It ticked all the boxes. Well, it should be doing this.
And, yeah, that that's what happens in in other other arenas and other industries, you know, when everything is lined up and it should do this, it generally does do this. You build a bridge and you've got the right materials and you've got the right bolts and you've got the right equations. It's gonna hold up when someone drives over it. Awful analogy guy. You know I'm the king of bad analogies, guys.
So and the third thing is that, it works for you and you think, oh, well, I can solve this. Every time I can solve this, I'll just add more rules and more thinking, more process, and and and that never really works. You know, I'm a big fan of letting the intuition, kind of blossom a little bit, and and overthinking goes against that. The thought process is what's the risk on the deal? Is this is it is it kind of aligned with my broad idea and theme?
Am I the right time of day approximately for day trading? Am I aligned correctly with the trend? Am I aligned with some of the you know, there there are things, of course, to check, and there are things that you you know, they're gonna help your trade. Example, you know, you're not gonna be you won't wanna be buying a breakout on a lunchtime environment, quiet day when it's already done the daily range, for example. You're asking a lot.
You're asking for it to breakout when volume You're asking it for due to do much more range than it normally does. There's loads of reasons why that would wouldn't be a great trade. And again, that's just a kind of operational thing from my perspective. But, you know, once you've ticked the main filter boxes, there's there's no need to think anything more about the trade. It's like, okay, the risk is the risk.
Let's see what happens with it, and take the trade and and see what the results are. So just watch out for you overthinking. It can be detrimental. If you're prone to overthinking, then perhaps something to work on, a task to work on for the week ahead is to say, right. You know, I'm I'm I'm not great overthinking.
I I kinda think about stuff too much. So really, I'm gonna advise a strategy, a a multi step checklist that I'd literally do that and then I either pull the trigger or I don't. You might you don't have to force yourself to pull the trigger, but keep a log of it. Keep a log of it. And say, okay, well, this is the trade I should have taken, I didn't take it.
And then when you start to see actually, you know what, if I had pulled the trigger every time that a trade it it sets up or a trade that I thought was great, was there and I didn't pull the trigger. You start to see, hey, you know what, just pull the trigger on every trade. Because you know you can always tweak and adjust the strategy, later on down the line. So something to consider week ahead, if you're overthinking your trades, if you are over analyzing, over, doing homework for one of a a better word, then they may put some some parameters in place to to kind of stop that. And I think you'll notice, a decent increase in performance from doing that.
Take care, guys. Keep your risk managed. Bye bye. August 17th 2021. Mark Holstead
https://pod.co/trading/traders-mastermind-death-by-trading-rules
E1 10:08 August 17th 2021