Technical analysis is a powerful tool, but we have all had cases where it worked poorly. Many traders fall into common traps, especially when they are only beginning their trading journey.
1. Missing the bigger picture
This 15-minute chart shows shows a downtrend, with the price breaching below the 50-MA and retesting it. That’s a clear downtrend, right?
The daily chart, however, shows a clear uptrend. Going against it is risky. Higher timeframes generally carry more weight and should be used to determine your overall sentiment.
2. Ignoring fundamentals
Charts do not exist in a vacuum. Economic reports, central bank announcements, political decisions, and geopolitical events can radically change sentiment in minutes. Any technical configuration can prove ineffective if unexpected news arrives.
We saw a reverse Head and Shoulders pattern (a powerful bullish signal), but a good US CPI report changed the situation, and the signal didn’t work.
3. Trading without confirmation
A common error is entering a trade based on a single signal, such as an overbought RSI. However, false signals are also a common trap.
How not to fall into the trap
Enter a trade when multiple factors confirm your intention:
•a key level
•a clear candlestick chart signal
•a favorable overall trend
•correlated assets
•higher timeframes
•fundamentals
4. Falling for fake breakouts
A price line may break the support or resistance level (and trendlines) and then sharply return. Fake breakouts like these can compel traders to enter the market too early.
The price broke above an important resistance level, but then rolled back. The RSI would be helpful in this case, as it would indicate that the instrument is overbought and further long positions are risky.
How not to fall into the trap
•Wait for a real confirmation, such as retesting the broken level.
•Learn to recognize large institutional traders influencing prices to trigger stop-losses or create false patterns.
•Manage your position sizes and risks accordingly.
5. Chasing indicators
Traders tend to overload charts with indicators, such as RSI, MACD, and Momentum, and make decisions based on all of them. Conflicting signals may overwhelm and confuse you, causing missed opportunities.
The RSI and Momentum cross the mid-line upwards, suggesting bullish momentum. However, the MACD crosses the 0-line downwards, giving a bearish signal.
How not to fall into the trap
•Limit yourself to 1 or 2 key indicators that serve as filters, and use a clean chart with pure price action for most of your analysis.
•Focus on price movements, trends, and patterns rather than trying to confirm every signal.
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Disclaimer: These forex trading signals are for educational purposes only and not financial advice. Trading carries significant risks, including the potential loss of your entire investment. Always consult a professional advisor before jumping in.