Information overload refers to the situation a trader or investor is in Access to a lot of information about a financial asset or the broader market.
These days, the information overload situation is made even worse by the large number of websites covering the financial market (and the huge influence of social media).
In this article, we’ll explain what information overload is and why it’s important.
Definition of information overload
The first thing you’ll ask is, “What is information overload?” Information is an important part from the financial market. It helps traders know if they want to buy or sell a financial asset. Likewise, information helps investors learn more about an asset and why it is going up or down.
In the past, the amount of information on the market was somewhat limited. At that time, people relied on traditional media companies such as the New York Times and the Wall Street Journal (WSJ). today is number of resources Financial market coverage has increased dramatically. Anyone can create a website and publish this information.
Therefore, information overabundance is the situation you can get into Too much information about one or more financial assets. For example, ten analysts can provide ratings for a particular company per day. as a merchant, You can struggle To differentiate between these ratings and to know which ratings to follow.
Excess information It is not limited to news. that it also Found in educational content In the market.
Today, there are thousands of financial education websites. For example, you will find different writers and video creators explaining how to use a technical indicator differently. Some recommend buying the asset when it is overbought while others recommend selling it short.
An example of information augmentation
A good example of information overload is when you are looking for a well-known company like Tesla. The screenshot below shows that dozens of articles have been written about Tesla in the past 24 hours.
In some periods, the amount of this information is usually more than that.
So, while this information is good, it can confuse a day trader or even an investor.
Reasons for the increase in information
there Three main reasons Excess information in the financial market. The first reason is amountwhere is the number from information sources a lot.
Some of these common sources that people use in the industry are
- Wall Street Journal
- financial times
- market surveillance
Among other things. The fact that there are so many news sources is the main reason for this. This also applies to educational content as well.
Secondly, the other reason for information overload is The emergence of social networking tools Like Twitter, StockTwits, and Reddit. Many novice traders rely on tips from these platforms.
Sometimes, while this can work well, the truth is that too much information from social media platforms can overwhelm you.
The other reason for information overload is when Try to do too much at once. This happens when you are trying to juggle too many at once.
This situation will see that you are overburdened with too much information in the market.
Moreover, the Information transmission speed It is also a reason to increase the information. This is a situation where information is moving at a faster pace than normal.
Today, because of the Internet, information travels in Fastest pace ever. When the Fed publishes its interest rate decision, you will find a lot of information after a few minutes.
How to deal with excess information
Therefore, the question is how you should deal with information overload as an investor or trader. Some of the most important steps you can decide to use are:
Prioritize what’s important
The first and perhaps the most important way to deal with information overload is Prioritize what’s important. For example, you can prioritize the best news sources in the market.
Some of the most important news sources that you can use in trading are Bloomberg, Financial Times, and WSJ. Although these platforms are not always accurate, they tend to provide accurate information.
The same applies to social media platforms. In this case, you can prioritize following the most credible people in the industry.
Focus on one task at a time
The other way to deal with information overload in trading is Focus on one task at a time. For example, you can decide to trade only a maximum of five assets per day.
These could be companies like Apple, ExxonMobil, JP Morgan, UnitedHealth, and Pfizer. By focusing on a small number of companies, you will avoid a situation where you have a lot of confusing information at a time. The opposite of over trading.
Another way to deal with information overload is Take regular breaks in the trading session.
Instead of trading for more than 10 hours a day in a row, you can take several breaks in between. Taking these breaks will give you a chance to reset.
Be selective about the news sources you use
Moreover, you should Be selective On the news sources that you use in trading. This means that you have to narrow your focus to a specific number of sites. Sometimes, you will find it Less is more In this regard.
It is good to try to get more information about the asset we have decided to trade, but we should not overdo it. For example, a speculator or day trader can do without knowing all the basic information of a company.
The time limit for consuming information
Finally, you must create a file The time limit for consuming information In the market. This means that you can decide to spend a few minutes each day processing this information.
Another simple way to avoid information overload is to have a watchlist, use an extension automated program To filter the data, and have a well-developed plan.
Consequences of information overload
There are several major consequences of information overload in the marketplace. Some of the consequences are:
- Bad performance – In most cases, information overload will result in poor market performance.
- Burnt Sometimes information overload can lead to burnout, which in turn leads to stress and depression.
- Analysis paralysis – This is a situation where you struggle to make decisions because there is too much information.
- modernity bias – This is defined as a situation where you make decisions based on the most recent information you have made.
This article looked at an important concept that many traders go through every day. Information overload It could have serious effects And lead to losses and other effects such as stress and depression.
We’ve also looked at some of the best ways to avoid this kind of information overload in the financial market.