6 Common Mistakes in Technical Analysis

Technical analysis is one of the most common methods of analysis and an integral part of forecasting financial markets and has transformed the financial life of many investors. Even though learning technical analysis is not difficult at all and most people quickly get acquainted with this analysis and use it, the comprehensive understanding and the art of using technical analysis correctly is not everyone’s job. In the following, you can learn about the most common mistakes that people make in using technical analysis and avoid them.


1. Failure to prevent losses

When it comes to the financial markets, it becomes a little difficult to act “stop the loss”. The correct calculation of the loss limit or in general the use of the loss limit or Stop Loss will have a great effect on reducing the losses of traders.

Perhaps after entering the financial markets, many people forget that the first goal in trading is not to make a profit. Rather, it is not to lose the primary asset that you want to profit from. This is so important that a famous quote from Ed Seykota is often mentioned among traders:

The main element of successful trading is three rules: 1- Stop the loss 2- Stop the loss 3- Stop the loss. If you want to survive in the trading world, heed these rules.


2. Overtrading

As a trader, you may think that the more you analyze and find more entry and exit signals and increase the number of your trades, the more profit you will make, but forget that exaggeration is always wrong.

The reality is that sometimes the best thing to do is to do nothing. Knowing this issue is also useful in financial markets and digital currencies.

In addition, the number of transactions and more analysis robs the concentration and peace of the trader and significantly increases the percentage of wrong decisions.

It may not be believable, but many successful traders may trade only as much as the fingers of one hand in a year, but still achieve the desired result. Do not forget that positive traders are patient and always try to free their minds from daily activities and make decisions outside of market pressure to take any action. Even if this decision is hand in hand.


3. Retaliatory transactions

Maybe the idea of ​​revenge trading seems very childish, but it is not bad to know that most of the activists in the trade field have done this. This mistake and the incorrect conclusion are the results of a series of wrong decisions that occur in abnormal mental conditions for traders.

Your predictions may work well for a period, so you trust them. Now, what if the same predictions suddenly no longer work? Surprise caused by traders’ overconfidence in their predictions is the main cause of this mistake.

In this situation, it will be more difficult and costly for the trader to make a decision, and this is where the mistake of the trader, i.e. revenge trades, occurs. To compensate for the losses, this time he has emotionally entered into new transactions to compensate for the previous losses in the shortest possible time, and the result of this is clear from the beginning. More mistakes and losses.

To avoid this mistake, it is enough to remember that behind every good and profitable trade, there were hours of planning, research, and logical reasoning, and you did not achieve anything without effort. It doesn’t last.


4. Resistance to changing preconceived notions

The fact is that a particular strategy or method does not always work in different financial markets. Just because you have profited in the past with the help of a few limited indicators or a specific method is not a sufficient reason for their effectiveness in all markets. For this reason, many people who act in the same way as other markets in the digital currency market, quickly fail.


5. The result of technical analysis is certain

Don’t forget that technical analysis is nothing more than a prediction and it doesn’t always work. The market is affected by many daily events and may constantly change its direction and deviate from the predicted path, and technical analysis cannot have much to say in this situation.

A trader who knows how to work always follows the news and correct information and follows the most important events affecting the market, and along with technical analysis, he has a predetermined plan for managing the risk of his portfolio, and based on this, he makes the wisest decision that may be contrary to The result of technical analysis is taken.


6. Relying on the analysis of others

Another psychological part of technical analysis is stability in decisions and self-confidence. Many traders go to the opinions and opinions of others after obtaining the daily result of the analysis. This in itself is very natural and problem-free. The problem arises when you, as a trader, prioritize another analysis over your own and do not have enough confidence to act on your gains.



The bottom line

Technical analysis is an art that, if properly learned and used, can transform the financial life of any trader. Acquiring skills in this science is by no means an overnight affair and requires round-the-clock effort, constant study, and an endless passion for learning new subjects.

Don’t forget that trading, just like any other profession, requires many personal qualities and is suitable for people who always have a plan for unforeseen circumstances and do not give up and be surprised in sensitive and stressful situations. People who can control their emotions and avoid emotional decisions in this market and in addition to all this are always looking to learn and improve their knowledge in this field and try to learn from the most common mistakes of others and even if they are supposed to make mistakes, make new mistakes.

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