4 Fatal Mistakes in Forex Trading Strategies
One time a trader tries to really use technical analysis as a forex trading strategy . He has often heard that technical analysis is a powerful tool in generating profits. He also has repeatedly heard that technical analysis is quite easy to understand, even without the need to be bothered by an economic calendar schedule that can sometimes be very crowded.
Then he began adventuring with technical analysis. But what he got was far from his expectations. What happened? Where is the mistake?
Actually, if used correctly, technical analysis (as well as real fundamentals) can indeed help you to print consistent profits. The easiest example is that you can see repetitions of certain price movement patterns. All you need to do is to recognize these patterns and follow the “habits” of the market when these patterns appear.
However, carrying out technical analysis as a forex trading strategy is not as easy as it seems. That is why quite a lot of traders experience losses despite using technical analysis. That’s because most don’t realize they have made some fatal mistakes that actually make technical analysis backfire that they can’t control.
It is very important to recognize the “weapon” that you use when fighting, so that the “weapon” you can use optimally. Well, so that there is no “master weapon”, you need to know what mistakes people often do when they use technical analysis.
Think of technical analysis as a fortune-telling crystal ball
Many people assume that by mastering technical analysis, a trader can “predict” (in the sense of “ensuring”) what will happen next. This is wrong! How come ?
Look, let’s just think simple. If technical analysis really can predict “the future”, then that means we will know how much the price will appear tomorrow. Thus we no longer need to be strategic in forex trading , because prices move because of differences in “views” between market participants. If we all have the same view of the price that will appear tomorrow, there will be no price movements!
Technical analysis only gives us a clue what happened at this time and before. Based on the principle “history repeats itself”, we will be able to make a decision on what position we will take (buy or sell). Certain patterns that we see on the graph are patterns that often occur in the past, so that by recognizing these patterns we can “follow” the market behavior at times before.
This is the essence of technical analysis: reading what is happening and trying to follow the path, not predicting what hasn’t happened. This concept applies to ALL forex trading strategies based on technical analysis.
Use a ” time frame” that is too short
The purpose of technical analysis is to obtain opportunities based on price movements. For that you absolutely need valid and sufficient price movement data. The greater the opportunities you are looking for, the more data you have to have.
The mistake you might make is to try to get big results – sometimes you want to be infinite – just by using a little price movement data. It is unrealistic if you want to get a thousand dollars per transaction using only the 15 minute chart (M15) or maybe 5 minutes (M5) in the USD / JPY pair, for example. Yes, it is possible to happen, but events like that are just a kind of “blessing in disguise” if it happens, like what happened to USD / CHF some time ago. That is, it is very – VERY – small such opportunities exist, if not IMPOSSIBLE.
What is realistic for the target is to use an hourly chart (H1) or 4 hours (H4) for your forex trading strategy .
No waiting for confirmation
Lots of traders – who claim to use technical analysis – buy and sell only because they think the price is already in support or resistance. Indeed, basically in a good technical analysis the buy area is in the support area and the sell area is in the resistance area, but it is not that simple.
Wait for the right momentum. When you plan to buy in the support area, it’s a good idea to wait for confirmation that the support really survives.You have to see a “signal” that makes the potential for a bigger rebound, such as a signal confirmation of technical indicators or candlestick patterns. This rule also applies if you plan to open short positions in the resistance area.
Meet the chart with indicators
Now, this is the “disease” that most often affects traders, especially beginners. They feel less confident if their screen is not filled with various colorful indicators. In their view, the more “crowded” their chart, the more sophisticated the analysis produced. Right? WRONG!
In fact, the more indicators mean the greater the rules that must be passed. It often happens: indicator number 1 has confirmed the sell signal, but numbers 3 and 5 – for example – still show bullish indication.Meanwhile the indicator number 2 shows that the price is overbought, but at the same time the number 4 indicator is oversold. Your brain will be forced to work harder, even trapped in confusion: which one to follow?
Too many indicators will only make you “outdated”.
In fact, a trading strategy that works well in forex is a simple strategy.What you need in the trading system are only indicators of trend, momentum, and the ability to determine support and resistance.
Those are the mistakes that traders often make in using technical analysis. Actually, there are still many other mistakes, but the four things I said above are the biggest mistakes that are often made.
If you want to enjoy the market wave with a smile, avoid these four things. That way, you will be on the right track to optimize your technical analysis.
Congratulations to analyze.