Trading Education

Mistakes One Should Avoid in the Technical Analysis (TA)

Earlier, we covered in detail the basics of the technical analysis in the cryptocurrency market. This allowed us to be convinced of the effectiveness and popularity of this approach in trading. The analysis is based on previous data on price movements, volume, moving averages, and various statistics of results, which helps to identify the most favorable conditions for opening/closing positions. From a technical point of view, everything seems as simple as possible.

Then why are most traders unable to make consistent profits? Of course, everything can be attributed to a lack of experience or a non-functioning trading strategy. Trading psychology also plays an important role. Many problems arise from a lack of patience and discipline. Traders often tend to over-complicate their analysis.

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Carelessness and neglect of any aspects of the art of trade can lead to the risk of losing a significant part of your capital. This article will introduce you to some of the most common mistakes in technical analysis.

Using single or too many indicators

This is a common problem in many cases. In the first situation, the creators of their indicators declare that it is possible to trade only with one analysis tool. But in reality, indicators smooth out the big picture and show average values, and sometimes they give false signals. After all, indicators are mathematical formulas that are translated into a graphical form. They are unable to assess the tension in the market or react to the release of important news. In the second situation, people are too afraid of getting a false signal, they start attaching several indicators to the chart. Working on such a chart becomes very uncomfortable and signals to open positions contradict each other, which greatly complicates the trader in making decisions.

To avoid an excess of false signals, one should use 2-3 indicators that are based on different approaches. This is quite enough to build a profitable strategy and filter out false signals as much as possible.

Trading against the trend

Determining the general direction of price movement is the responsibility of any trader. And one should trade only in this direction. Of course, there are exceptions when you can make money on price pullbacks, but you must clearly understand what you are doing. Many traders do not even pay attention to the global trend and constantly open trades against the movement, which leads to unnecessary losses.

Before starting trading, all you need to increase the percentage of profitable trades is to determine the trend that dominates the currency pair and trade only in this direction. Such trades will not only be profitable more often but in case of mistakes, there will be a chance that the price will reverse before reaching the stop-loss, thereby bringing the losing position to zero.

Blindly following other traders

Any strategy or indicator can give a positive result. And when a report on this or that instrument is published, only a profitable entry into the market is laid out for review. And the calculation does not take into account many unprofitable trades or incomprehensible situations. Entering a trade based on someone else's analysis may work a couple of times but, in general, blindly following other traders without understanding the underlying context won't work in the long run. 

In this regard, it is necessary to learn to trade gradually and carry out many analyzes for self-assessment of the performance of certain approaches. This will protect novice traders from unnecessary entries and will help to avoid losses.

Being emotionally compromised

This is one of the most important factors that many people bypass and think that they have everything under control. When an emotional element appears in trading, the strategy immediately fades into the background. In a losing trade, instead of fixing losses, the trader waits for the price to reverse or starts to open orders to regain his positions, and it leads to even more losses.

It is extremely difficult to protect yourself from the psychological factor, but one can always find ways to reduce the risks. For some, the only option is to draw up a certain trading algorithm, where all the circumstances under which a trader closes positions and ends trading for a certain period of time will be spelled out.

Closing thoughts

Technical analysis deals with probabilities. This means that whatever technical approach you base your strategies on is never guaranteed that the market will behave the way you expect it to. No matter how experienced a trader you are, you should never think that the market will follow your analysis. Even if you have found the ideal course of action at the moment, do not be prone to excessive hopes that are too large for one outcome, because in this case, you risk large financial losses.

Anyone can become a successful trader using even the most common strategies and approaches. The main obstacle to this is himself. Therefore, analyze your trading and find there these or other mistakes that drag you to the bottom. Get rid of them and go to a stable profit.

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