The Do’s and Don’ts of Technical Analysis

Technical analysis is a method used in currency trading that involves analysing and predicting market movements based on past market data, usually price and volume data. Technical analysts believe that past trading activity can be valuable indicators of the security’s future price movements. Traders and investors frequently employ technical analysis as a tool for studying financial markets and building productive trading strategies. While technical analysis can be helpful, several things must be remembered before diving in.


Do understand the basics

A firm grasp of technical analysis’ foundational ideas and principles is essential. This can be accomplished by studying several technical indicators and chart patterns such as trend lines, support and resistance levels. If you have a firm grasp of these ideas, you’ll be well-equipped to analyze market movements and make prudent trading selections.

Do use multiple timeframes

It is recommended to use different timeframes when performing technical analysis. You can evaluate your study and gain new insights into market tendencies by comparing them over multiple periods. If you see a bullish trend developing over a day, for instance, you may use the hourly and 15-minute charts to determine when to enter and exit the market.

Do combine technical and fundamental analysis

Although technical analysis has been used, it is crucial to back it up with fundamental research. Financial statements, economic indicators, and industry trends are just a few data types used in fundamental analysis. You can learn more about the market by combining the two kinds of research.

Do practice risk management

When doing technical analysis, it is essential to employ suitable risk management methods. Limit exposure by using stop-loss orders and proper position sizing to mitigate risk. Before making a deal, it’s important to assess the potential rewards against the risks involved. You can safeguard your investment and ensure your company’s continued success by giving due attention to risk management.

Do adapt to changing market conditions

The market is alive and well and always changing. Maintaining flexibility is essential if you want to excel at technical analysis. Keep your tactics up-to-date as market conditions shift. Keep an open mind to new ideas and practices, and always strive to improve. It’s important to keep up with the latest technical analysis to stay ahead of the curve.


Don’t rely solely on technical analysis

Technical analysis is helpful, but it shouldn’t be the only factor you consider when making trade calls. It would help if you didn’t make decisions based on technical indicators and charts alone. To get a more complete picture of the market, you should use fundamental analysis, market news, and economic data.

Don’t chase after every trade

Don’t give in to the urge to trade based on every technical indicator. Increased transaction costs and the possibility of losses are consequences of overtrading. Don’t rush into trades; instead, wait for high-probability opportunities that fit your analysis.

Don’t ignore risk management

One of the most typical blunders traders make is to ignore risk management. Significant losses can be incurred without proper protections, such as stop-loss orders or adequate position sizing. Capital preservation and long-term viability depend critically on your risk management practices.

Don’t let emotions drive your decisions

Fear and greed are two emotions that can make it hard to think things through, leading to hasty choices. It would help to not rely on your emotions alone while making trading selections. Maintain your dedication and commitment to your analysis and trading plan through any market fluctuations.

Don’t disregard ongoing education

Learning and honing the craft of technical analysis is an ongoing process. Maintain state-of-the-art knowledge of technical analysis by learning about recent developments in the field. Learn new things by expanding your horizons through reading and attending seminars or webinars.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance.
It is your responsibility to ensure that you make an informed decision about whether or not to invest with us.
If you are still unsure if investing is right for you, please seek independent advice.
Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

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