As some of our readers will surely know, technical analysis or “TA” is one of the most widely used ways to analyze financial markets. Among its advantages, we have the fact that it can be applied to practically any current financial market. We are talking about stocks, currencies or gold. Even, as we have already seen at the time, it is possible to perform a technical analysis of Bitcoin. Now, if we are entering this world, we may want to anticipate the worst mistakes when making a technical analysis.
In this sense, we can point out that, although the basic concepts of technical analysis are relatively easy to understand, it is an art that costs a lot to master 100%. As always when we incorporate new skills, we are likely to make mistakes of all kinds before we become masters. Of course, the problem is that, when those failures have to do with our money, we must reduce the margin of error to a minimum.
And although learning from mistakes is essential, trying to avoid them is also vitally important.
Therefore, in this article we are going to try to stop at some of the most common mistakes that are made when carrying out a technical analysis, so that you can detect and avoid them in time.
Errors to avoid when we do a technical analysis
Don’t cut losses
The great experts in the field tend to agree on this: some of the essential elements of people who know how to trade their financial assets have to do directly with cutting their losses.
Beyond that it may seem like too simple advice, it is good to remember that, when it comes to trading and investing, protecting your capital should always be your number one priority.
Putting it another way, we could say that, when entering this universe, our first objective should not be to make money, but to avoid losing it. For this reason, it is advisable not to risk funds that we have destined to delicate matters, but only those that, to put it in some way, “we have excess”.
In this sense, platforms like Binance Futures have test networks, thanks to which you can carefully analyze your strategies before risking your hard-earned funds. That will allow you to protect your capital and risk it only when it is really worth doing.
Accepting that a business idea is wrong, that we have failed in the analysis in view of the results, and being willing to change before it is too late to cut losses, will be the foundation of your success.
If we consider ourselves as active traders, we can confuse this with the false need to stay in active trade all the time. Trading involves a lot of analysis and also patience, and these two things are simply impossible if we are trading all the time.
Some traders can perform only three trades per year and still produce outstanding returns.
Along the same lines, we can recommend that you do not enter operations for the mere fact of entering them. Many times money is made, or at least not lost, if we just sit there.
Trade for revenge
Some traders may not be as aware of this notion so, in any case, you should be aware that revenge trading is a lousy solution. And what is called “revenge operations”? Basically, those that are carried out as soon as we lose money, to try to recover it.
One of the keys to all advanced technical analysis of Bitcoins and cryptocurrencies indicates that it is easy to stay calm when things are going well, but that we can fall into rude mistakes in desperate moments.
If you want to be among the best traders, you should be able to stay calm even after the biggest mistakes. As always, avoid emotional decisions and try to focus on your most logical mindset.
In short, trading immediately after suffering a large loss tends to lead to even more losses.
Being too stubborn
If you want to become a successful trader, you shouldn’t be afraid to change your mind. And this has a very simple explanation: the market itself is constantly changing or evolving.
Therefore, your job as a merchant is to recognize all the changes that are taking place, and adapt to them. A strategy that usually works in one specific market may be insufficient in another.
Ignore extreme market conditions
There are times when the predictive qualities of technical analysis become less reliable. Black swan events or other unexpected and extreme conditions are often driven by emotions and mass psychology. Ultimately, markets are regulated by supply and demand.
A game of probabilities
Technical analysis is not responsible for analyzing absolutes. It’s all about probabilities. This means, in other words, that whatever technical approach we have decided to base our strategies on, we will never have the absolute guarantee that the market will behave as we expect, or as we would like.
Blindly follow other traders
Constantly improving your craft is essential if you want to dominate any financial market. We could even say that it is a primary condition, considering the changing market situations.
One of the simplest ways to learn is by following today’s best traders, as well as other experienced analytics. And although this is a tool that you should eventually trust, you don’t have to put aside your strengths, which you should also try to take advantage of.
The most curious thing about the case is that, if we pay attention to different interviews of traders from all over the world, we will notice that many of them disagree in their strategies. In this way, it would be impossible to follow everyone’s recommendations or suggestions. And that’s one of the reasons why you shouldn’t blindly follow them.
In this article, we have reviewed the worst mistakes in the world of technical analysis. We believe that if you take them into account and do not forget about them, you will be much closer to avoiding mistakes when designing your strategies.
For the rest, don’t forget that being consistently good at trading is a time-consuming process. It takes a lot of practice to refine business tactics and learn to formulate our own business ideas. But, this way, it will be much easier for you to be able to establish what your strengths and weaknesses are, and work on them.
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