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7 Common Mistakes in Technical Analysis (TA)

Breaking the news, TA is even more difficult! If you have been trading for a while, you will know that making mistakes is part of the game-in fact, no trader can avoid losses, including experienced traders who are unlikely to make mistakes.

That being said, almost all novices make some small mistakes at the first start. The best traders always remain open, rational, and calm, understand their game plans, and continue to read what the market tells them.

If you want to succeed, this is what you have to do! By cultivating these qualities, you can manage risks, analyze errors, develop your strengths, and continuously improve. Try to be the calmest person in the room, especially when things get tough.


Let's see how to avoid the most obvious mistakes!


Introduction

Technical analysis (TA) is one of the most widely used methods for analyzing financial markets. TA can be applied to almost any financial market, whether it is stocks, currencies, gold, or cryptocurrencies.


Although the basis of technical analysis is relatively easy to understand, it is difficult to grasp. When you learn a new skill, it is natural that you will make many mistakes in the process. This is especially dangerous when it comes to trading or investing. If you are not careful and do not learn from your mistakes, you may lose most of your money. It is good to learn from mistakes, but it is better to avoid them as much as possible.


This article introduces you to some of the most common mistakes in technical analysis. If you are new to trading, why not learn the basics of technical analysis first? Read our article on what is technical analysis? And 5 main indicators for technical analysis.


So, what are the most common blunders that new traders make when using technical analysis?


1. Not cutting your losses

It sounds simple, but it is always helpful to emphasize its importance. In terms of trading and investment, protecting your capital is always your top priority.


Getting started can be a challenge. A reliable method to consider when starting is: the first step is not to win or lose. The position size is not even risky for real funds. For example, Binance Futures has a test network where you can test your strategy before taking the risk of earning money. In this way, you can protect your capital and only take risks if they produce good results in the long term.


Setting a stop loss is a simple explanation. Your transaction must have a cancellation point. This is where you grit your teeth and agree that your business philosophy is wrong. If you don't apply this mentality to your work, you may not. In the long run, you are fine. Even a bad trade can cause great damage to your investment portfolio. You may end up losing money and hope that the market can recover.


2. Overtrading

When you are an active trader, it is a common misconception that you should always participate in trading. The transaction involves a lot of analysis and long waits! Certain trading strategies may require you to wait a long time to obtain a reliable signal before you can enter the transaction. Some traders may have fewer than three transactions in a year, but they can still make outstanding profits.


Don't try to enter the transaction just for the sake of the transaction. You don't always have to have surgery. In fact, in some market situations, it is more profitable to do nothing and wait for the opportunity to introduce yourself. In this way, you can save money and be ready to take action when good business opportunities arise again. It should be noted that opportunities will always come. You just have to wait for them.


A similar trading mistake is to focusing too much on a shorter time frame. An analysis performed in a longer time frame is generally more reliable than an analysis performed in a lower time frame. Therefore, a shorter time frame creates a lot of noise in the market and may encourage you to enter the market. Although there are many successful dealers and profitable traders in the short term, trading in a shorter time frame usually provides a poor risk/reward ratio. Risk trading is certainly not recommended for beginners.


3. Revenge trading

It is common for traders to immediately try to make up for major losses. We call this an act of revenge. Whether you want to become a technical analyst, a day trader or a swing trader, it is important to avoid emotional decisions. key.


It's easy to keep your cool when things go well or when you make minor mistakes, but can you keep your cool when things go wrong? Can you stick to your trading plan even if everyone else is panicking?


Look for the word "analysis" in technical analysis. Of course, this requires analysis of the market, doesn't it? So, why make hasty and emotional decisions in such an environment? If you want to be one of the best traders, you must remain calm even if you make the most serious mistakes. Avoid making emotional decisions and focus on maintaining logical and analytical thinking.


Trading immediately after a large loss usually results in a greater loss. As a result, some traders may even be unable to trade for a period of time after a large loss. So they can start working again. Clear your mind.


4. Being too obstinate to change your mind

If you want to be a successful trader, don't be afraid to change your mind. a lot of it. Market conditions are changing rapidly. One thing is for sure. You will change. As a marketer, your job is to recognize these changes and adapt to them. Strategies that are very effective in one market environment may not work at all in another market environment.


It is a good idea to try to find your possible weaknesses on the other side of your argument. In this way, your investment essay (and decision) will be more complete.


This also raises another problem: cognitive bias. Prejudice can greatly influence your decision, influence your judgment, and limit the range of options you can consider. Make sure you at least understand the cognitive biases that may affect your business plan. This will help you mitigate the impact more effectively.


5. Ignoring extreme market conditions

Sometimes the predictive quality of technical assistance is not reliable, such as black swan events or other extreme market conditions that rely heavily on crowd emotions and psychology. Sometimes they will be extremely unbalanced in one direction.


Take the Relative Strength Index (RSI) as an example, which is a momentum indicator. Generally speaking, when the value is below 30, the asset on the chart can be considered oversold. Does this mean that if the RSI is lower than 30, this is an instant trading signal? No need! It just means that the dynamics of the market are determined by the seller. In other words, it just shows that the seller is better than the buyer.


The RSI can reach extreme values ​​under abnormal market conditions. It can even drop to a single-digit value close to the smallest possible value (zero). Even this extremely oversold value does not necessarily mean that improvement is inevitable.


Blind decision-making based on technical tools that reach extreme values ​​can cost a lot of money. This is especially true during the Black Swan event, where price movements are extremely difficult to interpret. At this time, the market may develop in one direction or some others. No analysis tool can stop them. Therefore, it is always important to consider other factors and not just rely on one tool.


6. Forgetting that TA is a game of probabilities

Technical analysis is not an absolute value, but a probability, which means that no matter what technical method you use in your strategy, there is no guarantee that the market will operate as expected. However, the possibility of the market rising or falling is uncertain.


You need to take this into consideration when setting up a trading strategy. No matter how experienced you are, you should not think that the market will follow your analysis. When you do this, you tend to be too big and over-bet on the result, which puts you at risk of huge economic losses.


7. Blindly following other traders

If you want to master all the skills, especially in financial market trading, you must constantly improve your skills. In fact, changing market conditions make this necessary. One of the best ways to learn is to follow experienced professionals, analysts and traders.


However, if you always want to be good, you must also find and use your strengths. We can call it an advantage that makes you a trader.


If you read a lot of interviews with successful traders, you will surely find that their strategies are very different. In fact, a strategy that works perfectly for one trader may be regarded as completely ineffective for another trader. There are many ways to profit from the market. You only need to choose the one that best suits your personality and trading style.


Entering a trade based on the analysis of others can sometimes work. However, if you do not understand the main background and just follow other traders blindly, then it will definitely not work in the long run. You don't have to follow and learn from others. The decisive factor is whether you agree with the business philosophy and whether it is suitable for your business system. Even if other traders are experienced and respected, you should not follow them blindly.


Closing thoughts

When using technical analysis, we make some of the most basic mistakes to avoid. Remember, trading is not easy. It is more convenient to trade with a long-term mentality.


Sustaining success in trading is a tedious process. Perfecting your business strategy and learning to formulate your own business ideas requires a lot of practice. In this way, you can find your strengths, recognize your weaknesses, and control the situation. Your business and investment decisions.