Mistakes to Avoid When trading with Technical Analysis - Part 2

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In my last post, I spelt out the mistakes we must avoid when trading using technical analysis and one of such mistakes **is limiting our losses and not entering a trade with emotions. Other mistakes we may not be aware of includes the following.

PART 1

Ignoring extreme market conditions can also pose a serious threat to have been successful Traders. This is a big mistake many fail to correct. There are times when the predictive qualities of technical analysis becomes unreliable. These can be extreme market conditions that are driven by emotions and mass psychology heavily.

These markets are also driven by the principle of demand and supply which is a great indication that there can be times when the market have imbalances. Let's take an example of a tool in technical analysis called RSI, relative strength index.

This is a momentum indicator which helps in identification of trends and signals. If the reading on this index is below 30, the asset may be considered an oversold but this doesn't mean that it is an immediate trade signal when the reading goes below this 30. It rightly means that the momentum of the market is dictated by the seller side which means the sellers are stronger than buyers. These RSI can reach extreme levels when there are changing market conditions.

It's my even drop to single digits but this oversold reading may not really mean that there is imminent reversal. When such happens, Traders who make decisions blindly based on this extreme readings can lose a lot of money. That is why it is always important to consider some factors instead of relying on a single tool.

Another mistake worthy of notes is being solely dependent on the technical analysis. This technical analysis deals with probabilities and not absolutes. Whatever technical approach used, there is never a guarantee that the market will behave as expected. Maybe your analysis suggests that there is a high probability of the market moving up or down but that is not a certainty. So you need to take this into account when setting up your trading strategies.

No matter how experience you are, don't think the market will follow your analysis. Having such thoughts will expose you to oversizing and trading with a big position which may lead to big financial loss.

Another mistake is being too stubborn to change your mind. To be successful, you must not be afraid to change your mind as market conditions can change quickly and will always keep changing. Your job is to recognize these changes technically and adapt to them. One strategy that may work well in a particular market condition may not work in another.

You need to understand the cognitive bias that can affect your decision making and trading plans so that you can mitigate their consequences more effectively. Another important and dangerous mistake we should avoid is following other Traders blindly.

One of the best ways to learn is to follow experienced technical analyst. You also need to find your strength and build on them which can make you different from other Traders. If you read a lot of interviews with experienced and successful Traders, you will notice they all have different trading strategy. You just need to find which trading strategies suits your personality.

Screenshot from my telegram

Entering a trade based on someone else's analysis I can feel work though but if you blindly follow without understanding the concept, it may not work for you on the long run. This doesn't mean that you should follow other Traders. The thing is that you not should do blindly.

Becoming a successful Trader is a process that requires a lot of practice in refining your trading strategies and learning how to come up with yours because trading isn't easy. Take a note of this mistakes and correcting them will help you on the long run.

All screenshots are gotten from my binance

Disclaimer :Any financial and crypto market information provided in this post was written for informational purposes only and does not constitute 100% investment advice. It's just basic knowledge every crypto trader or investor should have