Technical Analysis of Financial Market: Top 7 Mistakes
Топ-7 ошибок технических аналитиков
Updated 19.11.2021

One of the most frequently used analyses when researching financial markets is a technical one (TA – technical analysis). It is applied on all classical asset markets that trade stocks: Forex, gold, or cryptocurrency. And you don’t even need to have any specific skills here as understanding the concepts and basics of TA will be enough for you. Also, you don’t need to worry about mistakes that may occur during learning a new skill – that is absolutely okay. However, only in that case if we’re not talking about trading and investments since each mistake made by you triggers losses and sometimes even huge ones. Just understand the point that it is quite natural to learn from mistakes but not in this situation because such failures cost you a part of the capital; therefore, it’s better to be very vigilant.

The main purpose of this article is to tell you in detail about the most widespread mistakes in technical analysis. If you are a novice trader, it is reasonable to initially study the basics set out in the articles that explain the term of technical analysis itself and describe the main indicators (there are five of them) used in TA.

So, let’s consider the mistakes most frequently made by novices who apply the results of TA in trading.

Mistake # 1. You don’t want to fix unprofitable positions

Probably, this definition may seem too simple for you, however, in our view, there’s significant importance that should be emphasized. Since, if you started trading and investing, your number one priority must be the protection of your capital.

At first glance, trading appears to be a complex process. As a rule, a prudent approach when you start trading is the following: the most important thing is not to win but not to lose. That’s why it makes sense to start from the position size that is less and not to trade real funds. For instance, Binance Futures has a testnet, where you can test your strategies first before you risk. So, you’ll be able to protect your capital reliably and put it at risk only in that case if you receive consistent good results.

We also recommend setting a stop-limit: that is simple rationality since each of your operations must have a point of failure. That is especially important if you already ‘kick yourself’ clearly understanding that your idea on how to conduct trade was wrong. If you ignore it during trading, most likely, you will not be able to succeed in the long run because a single failed deal will negatively affect the whole portfolio. The perspective is joyless – to continue to hold an unprofitable portfolio hoping for market recovery.

Mistake # 2. Overtrading

A widely spread mistake of novice traders is the opinion that traders must be engaged in trading constantly. In fact, trading implies a lot of analytical work and patience. There are also trading strategies when enough time should pass before you enter the deal and receive the signal for convergence. Actually, successful traders can make not more than three deals a year and at the same time get a pretty good income.

  1. Livermore, a trader-discoverer of day trading, said upon this subject that you earn money not during its process but during waiting for it.

We don’t recommend entering a position just to open it – there’s no need to keep a deal active all the time. There are also market conditions when it’s better not to take any actions simply waiting for the right moment. Thus, you’ll be able to save your capital as well as have the readiness to use it at any necessary moment. The moment will come when there are good opportunities for trading again. The essential fact is that trading opportunities always return, that’s why you just need to wait for them.

A similar trading mistake is when revaluation at lower time frames is made by traders. The analysis that took place at higher trading periods is usually more reliable. It follows that low time frames create a lot of noise on the market, which pushes to more frequent deals. Apart from the fact that there is a good number of successful scalpers with short-term deals bringing a small profit, trading in a limited trading period contributes to the low ratio of risk with remuneration. And if talking about novices, a risky trading strategy isn’t necessary here at all.

Mistake # 3. When you just want to revenge the market

The situations when traders are trying to compensate their losses as soon as possible, i.e. revenge the market, occur quite often. And here’s hardly any difference who you are: a technical analyst, day trader, or swing trader; it’s important to avoid emotional decisions here.

Surely, it’s easier to remain calm when everything goes well, and only minor mistakes are made. However, will you be able to stay patient when anything goes wrong? Will you be able to stick to your business plan regardless of the overall panic?

Based on the term ‘technical analysis’, the word ‘analysis’ stands for an analytical approach to the market, doesn’t it? Is it appropriate to make hasty and emotional decisions in this situation? If you’re driven by the desire to be among the best traders, you must stay calm even after the most colossal mistakes. Avoid emotional decisions and focus on the maintenance of logical and analytical thinking.

If you open new positions right after the previous ones have caused significant losses, you may suffer even greater losses. There are plenty of people among traders who stop trading after numerous failures in the past and then return to it with a clearer mind.

Mistake # 4. Overconfidence in your actions and no desire to adapt to market conditions

If your main purpose is to be a successful trader, don’t be afraid to change the established trading approaches that you have. After all, the nature of market conditions is very variable, which is actually its main feature. Your actions should be aimed at recognizing these changes and the ability to adapt to them. It’s worth remembering the strategy working on one market is usually useless on another one.

As an example, we can remember the words of Paul Tudor Jones, a famous trader. Telling about his positions, he said that each day implied that each of his positions was wrong.

It’s necessary to try to consider your relation to your strategies from a different view as practice – it will help you to define all the possible weaknesses. Eventually, you’ll be able to review your investment preferences and decisions that may become more complete ones.

At the same time, the example mentioned above may be a source of an extra problem: cognitive bias. The point is that prejudice has a great influence on decision-making, clouding your reasoning and limiting your potential opportunities. That’s why it’s better to try to understand cognitive prejudices that may influence your plans in trading so that you can mitigate their consequences with greater efficiency.

Mistake # 5. You ignore extreme market conditions

It’s impossible not to consider such points when predictions of TA become less reliable, for example, during Black Swan events or other extreme market conditions, usually due to emotions and crowd psychology. In this situation, it should be clear that markets moving from the perspective of supply and demand may take a position of balance between each other.

Let’s consider this situation on the example of the relative strength index RSI, pulse indicator. Generally, if it shows a digit below 30, such assets are considered to be oversold. Based on this, can we suggest that this is a direct trading signal because this indicator goes below 30? Surely, no! Since this is, in fact, indicates that during the current period, the movement of market dynamics is dictated by the party selling assets; this, to say it shortly, is a direct indication that the number of sellers exceeds the number of buyers.

RSI may reach extreme levels if there are unusual market conditions. The index may fall to one digit that is maximally close to the minimum possible indicator (zero), but this extreme oversold value doesn’t point to the inevitability of the following reversal.

TA may lead to significant losses at an extremely high pace when blind decisions are made. Such a mistake takes place in the ‘black swan’ events when it’s complicated to assess the forecast. In such situations, markets continue moving in both directions, and no analysis tool can stop them. For this reason, it’s always vital to consider many factors instead of relying on one of them only.

Mistake # 6. To forget that TA is probability theory

Technical analysis doesn’t provide absolutely reliable information since it’s based on some probability theory. It underlines the fact that when using the tool of technical analysis, based on which you develop personal strategies, there’s no guarantee that the market behavior will be fully the same as you expect it to be. With high probability, analysis can only calculate whether the market will go up or down, but that doesn’t stand for certainty regarding precise definitions of future movements.

When you develop personal trading strategies, try to bear in mind the peculiarity that, most likely, and despite your trader’s experience, the market won’t follow your analysis. Remember that if you have decided to make deals based on the signals indicators of TA with the use of large orders, you risk losing a significant part of your trading balance a lot.

Mistake # 7. When you blindly repeat the actions of other traders

If you want to succeed in some field, it’s better to regularly develop and improve personal skills. Especially, if this refers to trading on financial markets because market conditions are subject to constant change, and it’s difficult to follow them without accumulated experience. One of the best ways to learn is to follow experienced technical analysts and traders.

When searching for a stable way to get income, try to find personal strengths, develop them constantly, become one of the best and get an advantage over the rest of the traders.

If you read or heard interviews with successful traders, you will likely find out they have absolutely different strategies. Since a strategy that perfectly works for one trader, as a rule, is completely unacceptable for another one. Today there are many ways to earn money on cryptocurrency markets, and your goal must be to choose the one that works best for you and your trading style.

You need to understand that after blind duplicating other traders’ actions, without a complete understanding of the context of their strategies, you won’t be able to work in the long-term perspective; because entering the deal that is based on another person’s analysis, may work only several times. But it doesn’t matter that you cannot learn from others, and it’s important whether you agree with the trading idea and whether it matches your trading strategy. You shouldn’t blindly repeat the actions of other traders, despite all their experience and reputation.


In this article, we analyzed in detail some of the main mistakes that shouldn’t be made during technical analysis. Don’t forget that you can easily conduct a tender only in case it is a long-term decision.

Consistent and effective trading is a demanding process. It requires a lot of practice to improve trading strategies and formulate personal trading ideas. That’s why you need to pick out your strong points, define weak points, and control investment and trading decisions simultaneously.