If you think technical analysis is the trading strategy for you… watch out for these pitfalls

Julie Brownlee, Fsp Invest, 01 May. 2014

Tags: technical analysis, disadvantages of technical analysis, trading strategy, strategy, pitfalls of technical analysis, what is technical analysis,

Technical analysis is the technique of using market activity, historic prices and trading volumes to try and forecast future price trends. If this type of analysis looks perfect for you, before you jump in you need to be aware of a few things first. Read on to uncover the pitfalls of technical analysis…

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Technical analysis pitfall #1: Ignore any bias

When using technical analysis, it can sometimes be hard to ignore some warnings signs if you have a bias towards that sector or share for example. You need to try and ignore any bias that you have and look only at what the technical indicators are telling you.

Technical analysis pitfall #2: Different analysts interpret the same signals differently

Finding certain patterns and trends on charts isn’t easy. And this leads different analysts coming to different conclusions looking at the same thing.

Technical analysis pitfall #3: Missing the boat

Sometimes you miss the boat and only see the trend change after it’s happened. This means you’re not in a position to profit from it.

Technical analysis pitfall #4: Unclear signals

There’s a huge array of different tools and instruments available in the field of technical analysis. Using too many tools and indicators can lead to unclear signals.

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Technical analysis pitfall #5: Trader’s remorse

Even if you follow all the rules of the indicators you’re using, you will make mistakes. All facets of analysis are like this. Nothing is fool proof in investing.

You might find one technique works very well in one sector, but terribly in another for instance. You need to try out different techniques to find a strategy that works best for you.

So there you have it, the pitfalls you need to watch out for when you use technical analysis.

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