5 TRADER'S MISTAKES IN TECHNICAL ANALYSIS AND PRICE ACTION
The ability to interpret candlestick patterns and patterns gives us the key to understanding price movements. Once you learn how to read charts, you can trade any instrument in any market.
From a technical point of view, everything seems to be as simple as possible. Why then most traders can't get stable profits? Of course, everything can be put down to lack of experience or an inoperative trading strategy. Trading psychology also plays a big role. Many problems arise due to lack of patience and discipline. Traders often tend to overcomplicate their market analysis.
I have therefore compiled a list of the five most common mistakes in technical analysis and price action:
1 MISTAKE - LEVELS ARE DRAWN BY CANDLESTICK BODIES, NOT BY THEIR SHADOWS
Cutting off candlestick shadows when making key levels is one of the most common mistakes.
Notice the picture to the left - how the levels on the chart cut off several candlestick highs and lows. When you cut off candlestick shadows in this manner, you limit your ability to successfully trade on trend lines. Not only will you have difficulty identifying the breakout, you will also have difficulty identifying the right entry point.
Now take a look at the chart to the right - here is an example of how we were supposed to draw a channel, how perfectly the support resistance levels match the highs and lows of the candlesticks.
The difference between the two charts above may not seem like much. But all the nuances lie in the details.
2 MISTAKE - TRADING ON PRICE PATTERNS WITHOUT CONFIRMATION
Being able to find price action patterns is great, but the patterns themselves often mean nothing.
Many traders try to trade price patterns and patterns before they have even formed, hoping to enter the market at the best price.
3 MISTAKES - TRADING ON SMALL TIMEFRAMES
Most traders want to make trades and profit every day. However, professional traders know how important it is to stay out of the market and wait for the right trading opportunities. They are extremely selective in opening trades and risk their trading capital with utmost caution.
Most beginners prefer lower timeframes, because then they have the opportunity to trade more often. They believe that the more trades they make, the more money they can make. But in trading more trades doesn't mean more money.
When it comes to technical analysis, the big timeframes will always give better signals. In doing so, they filter out most of the market noise. In other words, they smooth out price movements. This is especially true during periods of increased volatility.
4 MISTAKE - IGNORING SUPPORT AND RESISTANCE LEVELS
I am referring to key levels that have been formed by the market regardless of the pattern you are trading.
By being aware of all critical levels in the path of price movement, we can make decisions to close or hold a position based on logic rather than emotion.
Therefore, always mark support and resistance levels first before entering the market.
5 MISTAKES - TRADING ON BAD OR UNCLEAR PATTERNS
What do I mean by bad or unclear patterns?
In a nutshell, they are patterns that are not immediately apparent. If it takes you more than a couple of minutes to find a pattern on a chart, it's probably not worth trading.
Even if you have only been trading for a month and haven't yet studied all of the price action patterns, you should still be able to find price patterns in minutes.
From a technical point of view, everything seems to be as simple as possible. Why then most traders can't get stable profits? Of course, everything can be put down to lack of experience or an inoperative trading strategy. Trading psychology also plays a big role. Many problems arise due to lack of patience and discipline. Traders often tend to overcomplicate their market analysis.
I have therefore compiled a list of the five most common mistakes in technical analysis and price action:
1 MISTAKE - LEVELS ARE DRAWN BY CANDLESTICK BODIES, NOT BY THEIR SHADOWS
Cutting off candlestick shadows when making key levels is one of the most common mistakes.
Notice the picture to the left - how the levels on the chart cut off several candlestick highs and lows. When you cut off candlestick shadows in this manner, you limit your ability to successfully trade on trend lines. Not only will you have difficulty identifying the breakout, you will also have difficulty identifying the right entry point.
Now take a look at the chart to the right - here is an example of how we were supposed to draw a channel, how perfectly the support resistance levels match the highs and lows of the candlesticks.
The difference between the two charts above may not seem like much. But all the nuances lie in the details.
2 MISTAKE - TRADING ON PRICE PATTERNS WITHOUT CONFIRMATION
Being able to find price action patterns is great, but the patterns themselves often mean nothing.
Many traders try to trade price patterns and patterns before they have even formed, hoping to enter the market at the best price.
3 MISTAKES - TRADING ON SMALL TIMEFRAMES
Most traders want to make trades and profit every day. However, professional traders know how important it is to stay out of the market and wait for the right trading opportunities. They are extremely selective in opening trades and risk their trading capital with utmost caution.
Most beginners prefer lower timeframes, because then they have the opportunity to trade more often. They believe that the more trades they make, the more money they can make. But in trading more trades doesn't mean more money.
When it comes to technical analysis, the big timeframes will always give better signals. In doing so, they filter out most of the market noise. In other words, they smooth out price movements. This is especially true during periods of increased volatility.
4 MISTAKE - IGNORING SUPPORT AND RESISTANCE LEVELS
I am referring to key levels that have been formed by the market regardless of the pattern you are trading.
By being aware of all critical levels in the path of price movement, we can make decisions to close or hold a position based on logic rather than emotion.
Therefore, always mark support and resistance levels first before entering the market.
5 MISTAKES - TRADING ON BAD OR UNCLEAR PATTERNS
What do I mean by bad or unclear patterns?
In a nutshell, they are patterns that are not immediately apparent. If it takes you more than a couple of minutes to find a pattern on a chart, it's probably not worth trading.
Even if you have only been trading for a month and haven't yet studied all of the price action patterns, you should still be able to find price patterns in minutes.
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