Trading, Research, and Information

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Joe Ross

Active member
Nov 7, 2003
This question was sent to me from one of our students: “Hey Joe! I do an awful lot of research into a market before I attempt to take a trade into it. I look at fundamentals and I try to glean as much information as I can about the underlying. I think I’m doing a more than adequate job of information seeking, but I still am not even a breakeven trader. What am I doing wrong?”

Well, it could be that you are suffering from information overload. It could also be that you are gathering information about the wrong things. People have a tendency to believe that the accuracy of their trading increases with more information. This is one of the illusions of knowledge—that more is somehow better—that more information increases your knowledge about something and improves your decision- making ability. But, that is not necessarily true—increased levels of information do not always lead to greater knowledge. There are three reasons for this. First, people tend to interpret new information as confirmation of what they previously believed. You believe what you want to believe—you are biased, even if unconsciously so. Second, some information does not help us in making predictions, and can even mislead us. Finally, we often do not have the training, experience, or skills to interpret the information correctly.

You must closely examine the kind of information you are looking at and assess its real value to the markets you are trying to trade. I have seen traders keep elaborate records of everything they are doing as they trade. They keep files full of articles and reference materials which they pore over prior to making a trade. But is all this really necessary? I doubt it. It is much better to trade what you see without having to find justification through research for every trade.