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7 Common Mistakes in Technical Analysis (TA)
7 Common Mistakes in
Technical Analysis (TA)
Beginner
1mo ago
8m
TL;DR
Breaking news, TA is hard! If you’ve been trading for at least a little
while, you’ll know that making mistakes is part of the game. In fact,
losses are impossible to avoid for any trader – even experienced
ones who make fewer errors.
With that said, there are some trivial mistakes that almost every
beginner makes when starting out. The best traders always remain
open-minded, rational, calm. They understand their gameplan, and
simply keep reading what the market is telling them.
This is what you also need to do if you want to succeed! If you
develop these qualities, you can manage risk, analyze your
mistakes, play to your strengths, and constantly keep improving.
Try to be the calmest person in the room, especially when things
are looking rough.
Let’s see how you can avoid the most obvious mistakes!
Introduction
Technical analysis (TA) is one of the most used ways to analyze the
financial markets. TA can be applied to essentially any financial
market, whether that’s stocks, forex, gold, or cryptocurrencies.
While the basic concepts of technical analysis are relatively easy to
grasp, it’s a difficult art to master. When you’re learning any new
skill, it’s natural to make a lot of mistakes on the way. This can be
especially harmful when it comes to trading or investing. If you are
not being careful and learning from your mistakes, you risk losing a
significant portion of your capital. Learning from your mistakes is
great, but avoiding them as much as possible is even better.
This article will introduce you to some of the most common

mistakes in technical analysis. If you’re new to trading, why not go
through some technical analysis basics first? Check out our article
on What is Technical Analysis? and 5 Essential Indicators Used in
Technical Analysis.
So, what are the most common mistakes beginners make when
trading with technical analysis?
1. Not cutting your losses

Let’s start with a quote from commodities trader Ed Seykota:
"The elements of good trading are: (1) cutting losses, (2) cutting
losses, and (3) cutting losses. If you can follow these three rules,
you may have a chance.”
This seems like a simple step, but it’s always good to emphasize its
importance. When it comes to trading and investing, protecting your
capital should always be your number one priority.
Starting out with trading can be a daunting undertaking. A solid

approach to consider when you’re starting out is the following: the
first step isn’t to win, it’s to not lose. This is why it can be favorable
to start with smaller position sizing, or not even risk real
funds. Binance Futures, for example, has a testnet where you can
try out your strategies before risking your hard-earned funds. This
way, you can protect your capital, and risk it only once you’re
consistently producing good results.
Setting a stop-loss is simple rationality. Your trades should have an
invalidation point. This is where you “bite the bullet” and accept that
your trade idea was wrong. If you don’t apply this mindset to your
trading, you likely won’t be doing well over the long-term. Even one
bad trade can be very detrimental to your portfolio, and you might
end up holding a losing bag, hoping for the market to recover.
2. Overtrading
When you’re an active trader, it’s a common mistake to think you
always need to be in a trade. Trading involves a lot of analysis and
a lot of, well, sitting around, patiently waiting! With some trading
strategies, you may need to wait a long time to get a reliable signal
to enter a trade. Some traders may enter less than three trades per
year and still produce outstanding returns.
Check out this quote from trader Jesse Livermore, one of the
pioneers of day trading:
“Money is made by sitting, not trading.”
Try to avoid entering a trade just for the sake of it. You don’t always
have to be in a trade. In fact, in some market conditions, it’s actually
more profitable to do nothing and wait for an opportunity to present
itself. This way, you preserve your capital and have it ready to
deploy once the good trading opportunities show up again. It’s
worth keeping in mind that the opportunities will always come back,
you just have to wait for them.
A similar trading mistake is an overemphasis on lower time frames.
Analysis done on higher time frames will generally be more reliable
than analysis done on lower time frames. As such, low time frames
will produce a lot of market noise and may tempt you to enter trades
more often. While there are many successful scalpers and short-
term profitable traders, trading on lower time frames usually brings
a bad risk/reward ratio. As a risky trading strategy, it’s certainly not
recommended for beginners.
3. Revenge trading
It’s quite common to see traders trying to immediately make back a
significant loss. This is what we call revenge trading. It doesn’t
matter if you want to be a technical analyst, a day trader, or a swing
trader – avoiding emotional decisions is crucial.
It’s easy to stay calm when things are going well, or even when you
make small mistakes. But can you stay calm when things go
completely wrong? Can you stick to your trading plan, even when
everyone else is panicking?
Notice the word “analysis” in technical analysis. Naturally, this

implies an analytical approach to the markets, right? So, why would
you want to make hasty, emotional decisions in such a framework?
If you want to be among the best traders, you should be able to stay
calm even after the biggest mistakes. Avoid emotional decisions,
and focus on keeping a logical, analytical mindset.
Trading immediately after suffering a big loss tends to lead to even
more losses. As such, some traders may not even trade at all for a
period of time following a big loss. This way, they can get a fresh
start and get back to trading with a clear mind.
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4. Being too stubborn to change your

mind
If you’d like to become a successful trader, don’t be afraid to
change your mind. A lot. Market conditions can change really
quickly, and one thing’s a certainty. They will keep changing. Your
job as a trader is to recognize those changes and adapt to them.
One strategy that works really well in a specific market environment
may not work at all in another.
Let’s read what legendary trader Paul Tudor Jones had to say
about his positions:
“Every day I assume every position I have is wrong.”
It’s good practice to try to take the other side of your arguments to
see their potential weaknesses. This way, your investment theses
(and decisions) can become more comprehensive.
This also brings up another point: cognitive biases. Biases can

heavily affect your decision-making, cloud your judgment, and limit
the range of possibilities you’re able to consider. Make sure to at
least understand the cognitive biases that may affect your trading
plans, so you can mitigate their consequences more effectively.
5. Ignoring extreme market conditions

There are times when the predictive qualities of TA become less
reliable. These can be black swan events or other kinds of extreme
market conditions that are heavily driven by emotion and mass
psychology. Ultimately, the markets are driven by supply and
demand, and there can be times when they are extremely
imbalanced to one side.
Take the example of the Relative Strength Index (RSI), a
momentum indicator. Generally, if the reading is below 30, the
charted asset may be considered oversold. Does this mean that it’s
an immediate trade signal when the RSI goes below 30? Absolutely
not! It just means that the momentum of the market is currently
dictated by the seller side. In other words, it just indicates that
sellers are stronger than buyers.
The RSI can reach extreme levels during extraordinary market
conditions. It might even drop to single digits – close to the lowest
possible reading (zero). Even such an extreme oversold reading
may not necessarily mean that a reversal is imminent.
Blindly making decisions based on technical tools reaching extreme
readings can lose you a lot of money. This is especially true
during black swan events when the price action can be
exceptionally hard to read. During times like these, the markets can
keep going in one direction or the other, and no analytical tool will
stop them. This is why it’s always important to consider other
factors as well, and not rely on a single tool.
6. Forgetting that TA is a game of

probabilities
Technical analysis doesn’t deal with absolutes. It deals
with probabilities. This means that whatever technical approach
you’re basing your strategies on, there’s never a guarantee that the
market will behave as you expect. Maybe your analysis suggests
that there’s a very high probability of the market moving up or down,
but that’s still not a certainty.
You need to take this into account when you’re setting up your
trading strategies. No matter how experienced you are, it’s never a
great idea to think the market will follow your analysis. If you do
that, you’re prone to oversizing and betting too big on one outcome,
risking a big financial loss.
7. Blindly following other traders

Constantly improving your craft is essential if you want to master
any skill. This is especially true when it comes to trading the
financial markets. In fact, changing market conditions make it a
necessity. One of the best ways to learn is to follow experienced
technical analysts and traders.
However, if you’d like to become consistently good, you also need
to find your own strengths and build on them. We can call this
your edge, the thing that makes you different from others as a
trader.
If you read many interviews with successful traders, you’ll surely

notice that they’ll have quite different strategies. In fact, one
strategy that works perfectly for one trader may be deemed
completely unfeasible by another. There are countless ways to
profit off of the markets. You just need to find which one suits your
personality and trading style the best.
Entering a trade based on someone else’s analysis might work out
a few times. However, if you just blindly follow other traders without
understanding the underlying context, it most definitely won’t work
over the long-term. This, of course, doesn’t mean that you shouldn’t
follow and learn from others. The important thing is
whether you agree with the trade idea and whether it fits into your
trading system. You should not be blindly following other traders,
even if they are experienced and reputable.
Closing thoughts
We went through some of the most fundamental mistakes you
should avoid when using technical analysis. Remember, trading
isn’t easy, and it’s generally more feasible to approach it with a
longer-term mindset.
Becoming consistently good at trading is a process that takes time.
It requires a lot of practice in refining your trading strategies and
learning how to formulate your own trade ideas. This way, you can
find your strengths, identify your weaknesses, and be in control of
your investment and trading decisions.
If you’d like to read more about chart analysis, check out 12 Popular
Candlestick Patterns Used in Technical Analysis.

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HomeArticles

7 Common Mistakes in Technical Analysis (TA)

This article will introduce you to some of the most common

1. Not cutting your losses

Starting out with trading can be a daunting undertaking. A solid

Notice the word “analysis” in technical analysis. Naturally, this

Looking to get started with cryptocurrency? Buy Bitcoin on

4. Being too stubborn to change your

This also brings up another point: cognitive biases. Biases can

5. Ignoring extreme market conditions

6. Forgetting that TA is a game of

7. Blindly following other traders

If you read many interviews with successful traders, you’ll surely

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