Why Trading Analytics Matters Even if You Are a Beginner
Breaking news, Technical Analysis is hard! But you’ve probably noticed that by now. Whether you are a seasoned trader or just starting, you know that it’s part of the game to make mistakes. In fact, it is nearly impossible to avoid making losses, even for experienced traders.
There are certain trivial mistakes made by almost every beginner. Seasoned traders will tell you the trick is to always remain rational, open-minded, and in control of emotions. They have been in the game and they understand the game plan. They know how to read what the market is saying. That said, this is exactly what you need to be more successful. Once you master these skills, you will be able to analyze mistakes, manage risks, maximize your strengths, and enhance your skills.
Even when things are looking tough, be the calmest person in the room. Let’s see how you can avoid some of the most obvious TA mistakes.
Cut Your Losses
There are three elements of a good trade; cutting losses, cutting losses, and cutting losses. If you follow these three vital rules, you’ll probably be a good trader.
To many, it seems like a pretty simple tip, but it’s great to emphasize how important it is. Protecting your capital is the primary priority of not just trading but investing as well.
But, it’s more of a daunting undertaking for beginners. Therefore, a solid approach when starting trading is to remember that the primary goal is to win and never to lose. For this reason, it is better to start with smaller positions or avoid risking real funds. Experts at SmartTrader advise starting with a test platform where beginners can test out their strategies before risking real money. This way, you can protect your capital until you learn the gist of things.
Your simple rationality should be setting stop-loss and having an invalidation point for your trades. This is the point where you admit it was a wrong idea to execute the strategy. If you fail to apply this simple mindset, it is highly likely you’ll incur huge losses in the long-term.
One of the most common mistakes beginners make is assuming that once they start trading they always have to be in a trade. Besides technical analysis, trading involves a lot of patiently waiting. Also, with some strategies, you’ll need to be more patient before a signal to enter the trade is clear. Actually, the common contemporary wisdom in trading is that money is not made by trading but it’s made by sitting.
Avoid entering trades just for the fun of it. In fact, in most market conditions the best strategy is sitting around and waiting for the perfect opportunity to present itself. This allows you to preserve your capital for more worthy trades. And, opportunities always come back – all you have to do is wait.
Another common rookie mistake is the overemphasis on shorter time frames. While lower time frames are more tempting, higher time frames are more reliable. Lower time frames are especially a risky strategy not advisable for beginners.
You’ve made a loss, and now you want to immediately reverse the fortunes. This is revenge trading. Whether you’re a seasoned trader, beginners, or a technical analyst, avoid emotional trading!
Staying calm when things are going superbly well is easy. But the real test in trading is staying calm when things are going haywire. Can you control the panic attacks when it gets there?
The world analysis in trading naturally shows that you should approach the markets analytically. So, in such a framework there is no rationale to make hasty decisions. To be the best trader calls for calmness even in the face of the biggest trading mistakes. Be logical and maintain an analytical mindset.
Remember, you’re likely to make more losses if you trade immediately after a huge loss. Therefore, take your time and try a fresh start with a clearer mind.
Don’t Be Stubborn
Successful traders change their minds every so often. The only constant thing is you. The market conditions change quickly and your focus should be to analyze the changes and adapt accordingly. A strategy that worked in a certain environment might be catastrophic in the next.
In fact, every day assume that the previous position was wrong and have a fresh look at the analytics. It’s a recommended way of being able to spot your potential weaknesses and maximize your strengths.
Additionally, avoid cognitive biases. These biases might cloud your judgment and limit your decision making. So, be sure to identify and address any cognitive biases that might derail your trading plans.
Don’t Ignore Extreme Market Conditions
Sometimes, even the reliability of TA doesn’t save the day. There are extreme market conditions commonly referred to as black swan events that are heavily driven by mass psychology. Normally, it’s demand and supply that drive the markets but in extreme conditions there can be an imbalance to a particular side.
Therefore, be sure to factor in these conditions as blind decisions based on TA tools can make you huge losses. In black swan events, the price action becomes harder to read and more than just TA tools are needed.
TA is Probabilities Game, Really
TA deals with probabilities and not absolutes. Simply put, it is not guaranteed that the market will behave as the technical analysis suggested.
So, always consider this when executing your trading strategies. Whether you’re a beginner or an experienced trader, it’s a mistake to think the market will always behave as you expected.
Don’t make assumptions, they are expensive in trading!
Blindly Imitating Others
To master any skill in trading, you have to constantly hone your craft. And, following the tips and ways of experienced traders is a good start to enhancing your skills.
However, to make your skills consistent, you need to identify your unique strengths and maximize them. This is your trading style, what makes you uniquely different.
Entering trades based on others TA is good but understanding the underlying concept on your own is even better!To be consistently good at TA and trading needs patience and practice. We went through some of the most common TA mistakes people make to help you refine your craft. Be sure to consider them in your trade strategies.