A must-read for beginners! Have you fallen into these three traps of technical analysis investment?
Over-trusting technical analysis, ignoring the overall market situation, and the shortcomings of a single indicator may lead to the failure of investment strategies. Investors should remember to avoid the following three traps.
Although technical analysis predicts future market behavior by studying the past price trends and trading volumes of the market. Many investors soon discovered that even if there is an entry signal, there is no guarantee of profit, and they are often in a state of loss.
Why is this so? In fact, the problem is usually not the technical analysis itself, but the user's understanding and application of these tools. The common mistakes made by novice investors in the practice of technical analysis are often some basic but fatal mines.
This article will explore the four common mistakes made by novices when using technical analysis, aiming to help investors
Identify and avoid these pitfalls, thereby increasing the success rate of investment. Three common misunderstandings of technical analysis:
1. Not strictly mastering stop loss
When it comes to investment and trading, the stop loss mechanism is a crucial link, especially for novice investors. Only by establishing an effective stop loss strategy can assets be well protected. Because one of the most common challenges for novice investors is that they are prone to emotional trading.
When the market price fluctuates, emotions often affect investors' judgment and make irrational decisions. For example, they trust technical analysis too much. When there is an entry signal, they continue to place orders even though the direction is wrong, and even want to increase their bets to make more money, which leads to a liquidation. (Especially contract investors should pay more attention to stop loss)
First, novice investors should determine their risk tolerance, which means understanding the maximum loss they can bear. Then use technical analysis tools to determine the stop loss point. 🐳qun楂👀玮：1983211157 (Usually technical analysis can help investors identify support and resistance levels, so as to determine the appropriate stop loss point)
Next, investors should set clear stop loss instructions. This means determining the stop loss point when entering the transaction and executing the stop loss order immediately when the stop loss point is reached, rather than being swayed by emotions. This can be achieved by setting a stop loss order, which will be automatically triggered when the asset price reaches a preset level.
Finally, investors should adhere to their stop-loss strategy. This means firmly executing stop-loss orders no matter how the market fluctuates. While stop-loss may cause investors to miss out on some potential returns, it can protect them from large-scale losses.
In general, stop-loss mechanisms are essential for novice investors to maximize their investment protection and reduce the risks of emotional trading.
2. Oversimplifying technical analysis and ignoring overall market conditions
Over-reliance on technical analysis may cause investors to ignore the big trends in the market. Technical analysis tools are often used to identify short-term market trends and volatility, but if long-term trends and overall market conditions are ignored, investors may miss a comprehensive understanding of the market.
For example, even if technical indicators show that a stock is in an upward trend, if the overall market is in a downward trend or faces major uncertainties, then investors should be more cautious and consider adjusting their stop-loss strategies.
Especially in the cryptocurrency market, the maturity is relatively low, and prices are more susceptible to other market factors. If we take Bitcoin as an example, after years of development, BTC is also more closely connected to various parts of the modern financial market. For example, the global economic environment, political situation, Federal Reserve monetary policy, etc., may have a significant impact on Bitcoin. Therefore, when formulating investment strategies, investors should also consider the overall market conditions and changes in other related markets, rather than just relying on the signals provided by technical analysis tools.
3. Technical analysis requires multiple indicators
Technical analysis experts need to use multiple indicators to more comprehensively evaluate market conditions. A single technical indicator often cannot provide enough information, so investors should combine multiple data for analysis to better understand market trends and volatility, and then formulate more effective investment strategies.
For example, commonly used indicators in technical analysis include moving averages, relative strength indicators (RSI), MACD, etc. These indicators have their own characteristics and can provide different aspects of market information. Combining these indicators, investors can obtain a more comprehensive market analysis.
Moving averages can help investors identify the direction and strength of market trends;
RSI can measure the overbought and oversold conditions of the market;
MACD can capture the momentum changes of the market.
In addition, technical analysis often has various patterns of teaching, such as head and shoulders, double tops, triangles, etc. Usually, if you only rely on a certain pattern to enter the market when a key signal appears, you will often be harvested by big investors and become a leek.
Therefore, by combining multiple indicators, different time frames and other forms of analysis, investors can obtain more comprehensive and accurate market analysis, thereby formulating more effective strategies.
Conclusion
The market is unpredictable. Oversimplifying technical analysis, ignoring the overall market situation and the inadequacy of a single indicator may lead to the failure of investment strategies. Therefore, investors should pay attention to avoid the above traps and strive to improve their market analysis capabilities and decision-making levels.
