1) Major Rules to Overcome Problems in Technical Analysis
• Drawing of Price Action Patterns: Price action in technical analysis refers to movement in stock prices and getting trading cues from it.
• Be clear which patterns you trade: There are a number of patterns in technical analysis that are indicative of market behavior. It’s important to know which patterns you trade.
• Know which tools and indicators you use and don’t jump around: Indicators are statistical tools under technical analysis that gives buy-or-sell signals to investors. They help in ascertaining the momentum, market trends, level of volatility, and other aspects of a security.
• Avoid Hindsight Error: More often than not, fundamental data, charts, and indicators give us data that get mixed in our heads and paints a different picture of the present scenario.
• It’s a myth that entries are most important: People are often mistaken that if they make the perfect entry, they’re set on the road to profitability.
• Imperfections in Price Patterns: Price, being a dynamic concept, can’t be 100% reliable. There will be certain ‘imperfect’ price actions that will not conform to your textbook ideas and rules in. Don’t try to force these patterns on the market.
• Technical analysis is very discretionary: There are many technical analysis patterns and indicators today, but it is not possible that we should master all the patterns and indicator.