This article introduces seven of the most common mistakes made by novices in technical analysis.
1- Loss limit is one of the most important mistakes in technical analysis.
Stop Loss is very important in trading and investing. Although it might sound trivial, there are many mistakes in this area. Maintaining capital is what every investor should give the first priority to. Trading is a risky business and the first step in doing so is not winning; It is to prevent loss. Setting a loss limit has a simple logic and you should admit your mistake at a particular point.
2- Excessive trading
A common mistake many inexperienced traders make is that they think they have to be constantly trading. Trading requires analysis and patience, and sometimes we have to wait a long time for a signal. Some professional traders make two to three trades a year and make significant profits from them. Although there are many daily and short-term traders who have their own strategies and make profitable trades, all things considered, daily trading is not recommended for beginners.
3- Revenge trade
When we talk about technical analysis, we mean we must refrain from making hasty decisions. If you want to be on a par with big traders, you have to be able to stay calm even after you have made the biggest mistakes. Always avoid emotional decisions and adopt a rational attitude. Trading after a large loss often leads to larger losses. Many large traders take a break after making a loss and do not trade during this time. These traders re-enter the trading space after a complete period of rest and preparation.
You should always take into account the other side of your hypotheses, and only then can you make sensible decisions. Prejudice and unreasonable inclination always influence your judgment. Make sure you know at least some of these tendencies; Knowing them will help you to be safer from their influence.
5- Ignoring the bad market conditions
There are times when technical analysis loses its predictability in the market. In this circumstance, emotions and collective psychology come into play and make supply and demand very disproportionate. Take the RSI as an example; If this index is below 30, it means that overselling has taken place, but when the index drops to below 30, can it be regarded as a acceptable signal to buy? Certainly not, and this only shows that the power of sellers is greater than the power of buyers.
6. Do not forget that technical analysis is a game of probability
Technical analysis does not deal with absolute things, but with probabilities. Predictions made using technical analysis are not conclusive and whatever your strategy, there is no guarantee that they will come true. You always need to consider this in setting your strategies. No matter how experienced you are, you should not expect the market to follow your analysis. If you have such an expectation, you will put a lot of capital into the market and you will bear a lot of risk.
7- Blindly following other traders
You need time to master everything. Trading in financial markets is no exception. The conditions of these markets are constantly changing and over time they can adapt to these changes. One of the best ways to learn is to follow experienced analysts and traders. However, if you read the interviews of different traders, you will notice that these traders use different strategies and one strategy may work for one trader and not for another trader. There are many ways to make a profit from the market and you need to find a way that suits your personality and trading style. Blindly following other people’s trades may work for a while, but it will ultimately hurt you. There is no denying that this does not mean that you should not follow others and learn from them, but it means different trading strategies and the strategy of a large and professional trader may not have a place in your system.