I) This is not financial advice and I am not a financial advisor. I’m sure there’re plenty of licenced professionals in your jurisdiction. Speak to them, not strangers on the internet with Hyman Minsky avatars.
II) This article is primarily aimed at cryptocurrency traders.
Technical analysis is hard.
For beginners, it is especially daunting seeing technical analysis (henceforth “TA”) done in so many different ways on Twitter and other platforms where analysts share their work.
There’s no single ‘right’ way to do TA. Nor is there a simple magic trick or indicator that’s missing from your arsenal that’s precluding you from being profitable.
Discussing where someone wanting to learn TA from scratch should start is beyond the scope of this article, and most likely warrants an article of its own.
This article is aimed at those who’ve started learning TA and consistently practice their charting.
The list is not exhaustive and I’m sure I’ve missed out on many important things.
But it’s a start.
These are 5 things — in no particular order — that I wish someone had told me to avoid when I started out.
1. Not using bigger time frames
Relying exclusively on low time frames is akin to tunnel vision.
It may seem obvious, but the amount of DMs I get and charts I see which are based solely on the 1H time frame and below (often far below) suggests this isn’t as obvious as it may seem.
Start big and zoom out. Opening a chart and switching to 1D or even 1W time frame and getting an idea of the price history and current trend of an asset is invaluable information.
It becomes much easier to see long-term trendlines, key swing points, levels, and so on when using high time frames.
If you’re a fan of using indicators, higher time frames will typically give more acccurate and powerful signals e.g. a 1D MA Death Cross is a much stronger indication of a change in the trend than a 1H> MA Death Cross. The same logic can be applied to TK crosses, oscillator divergences, and so on.
If you’re a fan of using chart patterns, patterns which are identifiable on higher time frames are typically more reliable and, if they play out, give bigger (and thus more profitable) moves.
The list goes on. Whatever your trade identification system may be, I am confident that at the very least starting with higher time frames will confer some benefits.
In short, too many beginners use only low time frames and miss the bigger picture. They miss the overall trend, the pivots, the higher time frame patterns, and a whole lot more.
Start big, zoom out, map out the chart, and then you can reduce the time frame to plan your entry and/or for other short-term plays.
2. Treating support and resistance lines as specific points
Support and resistance are zones where buyers/sellers might step in, not fine line points.
Thus, when mapping out your support and resistance lines on a chart, it’s best to think of them as general areas of buying/selling interest as opposed to do-or-die explicit price points.
You’re very unlikely to be drawing your lines the same as everyone else. Additionally, retail traders aren’t all going to be placing their asks and bids with pinpoint precision.
A fortiori, if you treat your lines as make or break zones, you render yourself an easy target for whales/market makers. What does this mean? Simply, they’ll make price dip marginally below support/above resistance, trigger your stop loss, and then push price back inside the range having shaken you out of your position.
The take home point can be easily summarised: be strict when drawing your lines, be flexible when price begins interacting with them. You can also use higher time frame charts to filter out the noise as price interacts with your lines (a great way of avoiding ‘fakeouts’).
3. Forcing the setup
If there’s a nice technical setup to be taken, you won’t need to force or bias any of your lines.
The simple fact is this: there will not always be a clearly identifiable asymmetrical risk:reward trade setup to be taken on every single asset you chart.
Not having/not taking a position is also trading.
Too many beginners open up a chart on a coin they like and feel that there’s a trade there but they simply haven’t found it yet.
This is not the case.
Sure, you’ll miss some stuff as a beginner, but your ability to identify trades will improve with more screen time.
It’s better to miss a trade and not make money than to force a trade and lose money.
In summary: if you don’t see a trade, or it doesn’t fit your criteria for trade identification, move on.
4. Misusing indicators
Too many beginners misuse indicators and use them as a crutch for their inability to chart and trade using price action alone.
In my mind, the logical order of learning is first getting comfortable charting ‘naked’ i.e. without any indicators, and then adding indicators for confluence and/or to get an idea of how price will behave upon interacting with your lines.
The amount of ways in which indicators are misused warrants an article of its own.
Using too many, piling them on without knowing what they mean, misinterpreting them, not using them to their full capacity, using them as crutches, and so on and so forth.
Did you know RSI alone can be used for 70/30 entry/exit signals, midpoint value crosses, divergences, trendlines, failure swings, and more? Perhaps you did, but if you look at a lot of TA on crypto Twitter, you’ll mostly see that “RSI oversold pointing up/overbought pointing down” is often the full extent of RSI analysis. Wasteful.
Don’t get me started on the chartists who use Ichimoku Cloud for everything and wouldn’t be able to draw support and resistance lines themselves even if they had a gun to their head.
In short: get comfortable with price action first, then start gradually introducing indicators and ‘mastering them’ (using them to their full capacity) one by one.
5. Marrying an approach
It’s an exhilerating feeling as a beginner when your TA style ‘works’ and results in profitable trades, but that alone shouldn’t preclude you from experimenting with other methods to see what works for you.
It’s especially tempting to emulate the style of those traders you see on Twitter with a big follower count and (seemingly) insanely consistent and profitable calls.
I believe that once you get comfortable with the basics of ‘naked’ trading and you’re generally able to accurately map out support and resistance on a chart, you should experiment and mix and match different styles to see what works best for you.
I personally thought Ichimoku Cloud and chart patterns were the absolute best until I started trading using levels and swing highs/lows, which I now use a lot more frequently. Now I am comfortable with all 4 and can look at all of them to check for confluence, or just out of interest to see how they match up.
This is another benefit of experimenting with different styles: not only do you get to discover what works best for you, but having learned another style, you can ‘see’ what other traders are looking at and what they’d be looking for in a trade setup. It gives you more perspective.
In short: once you’ve got the basics, play around with different styles. Doing so can help you discover your own personal strategy, while also exposing you to how other traders think and what they’re looking for in a chart.
Thanks for making it this far.
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