There are some common mistakes traders repeatedly make when using technical analysis. Technical Analysis is one of the many ways a trader can predict the future actions of the market based on previous behavior or volume data of the market. Technical analysis is relevant in the crypto market and stocks, forex, gold, and any financial market.
By the end of this article, you’ll understand which common mistakes to avoid when using technical analysis.
1. Continuing to Lose Money
It may seem like an easy mistake to avoid; however, it comes as the most important. Therefore, the more it’s drilled into your brain, the more you aim to prevent it. Trading is a stressful world, and we shouldn’t always strive to win. A trader’s mindset should be not to lose and protect his capital.
Starting with a minimal amount is the best option. Always start low and work your way up. This way, you’re not putting your assets at risk. Once you gain the right experience and are more familiar with the market trend, you can trade bigger sums.
Another common mistake in technical analysis is thinking you always need to be making a trade. An active day trader may be stuck in the mindset that he should be performing a trade at all times, which is undoubtedly not the case. As we discussed, technical analysis is a big part of trading. This may take time, and to complete a trade, you may need to wait for the proper trading opportunity, which doesn’t always come instantly.
Various traders make three trades a year and gain a hefty sum of Money. Waiting for the right opportunity to present itself is always a good option. This way, you’re saving your capital and using it at the proper time.
3. Trading for Revenge
When traders experience a significant loss, they try to make up for it. It’s called revenge trading, and most times, it doesn’t work and is the biggest mistake when dealing with technical analysis. Emotions shouldn’t be driving a trader’s decisions. Stoping yourself from trading based on a loss or mood is crucial.
When things go wrong, staying in tune with your emotions is hard, but this is where technical analysis comes in. Traders need to have an analytical approach to the market. Focusing on logic and not on feelings.
The right approach is to time out from trading for the short term when losing trade. This way, you can start fresh when you’re ready. The wrong approach to loss is trying to make as many trades as possible to gain back the Money. This usually results in more loss.
4. Don’t Be Stubborn
The market’s volatility can sometimes affect trading decisions, and we must adapt to those changes. In the time frame you chose to make the trade, the market could have experienced a move. A trader can’t be stubborn and stick with his decision even though the market conditions are not where he initially saw them.
A famous trader named Paul Tudor says, “Every day, I assume every position I have is wrong.”
Always see the other side of your decision. The part where there can be a potential weakness. This makes you see the decision differently and may give you a more comprehensive understanding.
5. Don’t Ignore Market Conditions.
There are specific situations where technical analysis is less reliable. Such as any extreme market conditions driven by traders’ emotions or mass physiology. Traders should refrain from blindly making decisions. During extreme market conditions, the market can go in one direction or the other, and no analytical tool can prevent that. We have to make sure to rely on several tools and not one.
6. Technical Analysis is Probable, not Definite.
Technical analysis is not a guarantee. It’s like an assumption. It’s not guaranteed that what you expected of the market will happen. Traders shouldn’t heavily rely on analytical tools; instead, they should keep in mind that it’s prone to change.
7. Following Fellow Traders
Learning from successful traders is the best method for successful trading. Professional traders already have their methods and strategies down. They know which steps to take and when to take them. Therefore, we can learn from them but not follow them. One trader’s most successful trading strategy may not work well for another trader. Each trader needs to experiment and see which method works best for them through trial and error. Following a trader blindly will not bring us success. However, following other traders blindly without understanding the underlying context would certainly not bring us success in the long run.
These are some of the common mistakes traders make with technical analysis. It takes a long time to become consistently good at trading. It takes a lot of effort to perfect your trading techniques and learn how to develop your trading ideas. All the points that we discussed today should help you identify your weaknesses and help you be in control of your trading decisions.
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