Common Mistakes Traders Make
Technical Analysis or TA is probably the first thing newcomers want to take a deep dive into after they have joined the market. Some even see charts and patterns as a cheat sheet to help them beat the market if they can manage to learn them all. In reality, nothing is that simple, and here are the reasons why.
Swamped with Indicators
Indicators are often portrayed as magical tools that can foresee the market and price movements. With over 100 indicators available, inexperienced traders are eager to try them all and create an ultimate price-prediction tool on their very own computers. However, using too many indicators can have a counterproductive effect on your trading performance. Swamped with multiple indicators across the screen might make you look like a pro, but often than not – they will just end up causing you distractions.
As a matter of fact, some of the indicators are even contradicting each other. For instance, combining two of the most popular indicators, MACD, a lagging indicator, and RSI, a leading indicator, often gives bad results. Sometimes it is best just to have the ‘right tool’ than to have ‘all the tools.’
Looking for the Holy Grail
As mentioned above, inexperienced traders have a misconception of trying to find the all-in-one indicator or ‘the Holy Grail’. Unfortunately, it is too good to be true as the Holy Grail just does not exist. Every trade setups have their own pros and cons, and usually only work in a certain set of situations. To be an excellent trader means being adaptive to the market and able to pick the right tool for the right job rather than to rely on one ‘ultimate tool’.
Lessons no one teaches you
Traders sometimes solely focusing on the technical analysis and forget there are more to trading than charts and patterns. Here are some of the valuable lessons people tend to overlook.
The only certainty is uncertainty
In the open markets, nothing is certain as John Allen Paulos once said “Uncertainty is the only certainty there is, and knowing how to live with the insecurity is the only security.” Prices can move in any direction, there are too many hidden factors to be calculated. Any major news or unfortunate events can and will affect the price despite whatever your indicators are telling you. Oftentimes, veteran traders lose the game by putting too much trust in their trade setups.
Especially in the small, immature, and low liquidity market, there are always ‘Whales’ manipulating the prices of the market or asset. To outsmart those whales, traders will need more than trading theories or indicators.
Know yourself
Nowadays, there are many learning channels and ‘gurus’ offer to teach you the technical analysis – some are free, some are paid. Most people who have taken courses from those coaches or gurus often impose the learnt techniques on themselves without realizing they might not be the best fit for them. Searching for your own style is very crucial – whether you are the trader, investor, or speculator – the only person with the answer is you. Mastering trading requires a lot of time and dedication. Most, if not all, great traders and investors constantly learn from their mistakes.
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