The #1 mistake most crypto traders make

When it comes to Technical Analysis of crypto charts, everyone is an expert these days. I see it here on Steemit plus plenty of other places too where people are posting up charts with lines on them, doing a bit of pattern recognition and then predicting where the price is headed.

Now don’t get me wrong, I am a big believer in using technical analysis but the key insight that is needed to use technical analysis effectively is to understand how and why it works. It is not a simple case of following the rulebook, drawing trend lines and identifying patterns. It is actually more about the psychology behind the market….but I won’t go down that rabbit hole just now as it’s a whole other subject, let me get to the point of my post.

If you want an example, just have a look back at the last week in the crypto markets. A week ago you would have seen plenty of technical analysis predicting this coin and that is going up in a trend or is about to break out with a big gain…..and then BAM, the Chinese comes out with a ruling that bans ICOs and it throws the WHOLE crypto market into a tailspin.

This is a perfect example of the fundamentals overwhelming the technicals and I constantly see traders who rely purely on technical analysis get caught out when the fundamentals change. A good technical analyst always has their eye on the fundamentals and is aware of potential upside or downside risks that can occur due to a change in the fundamentals. Technical analysis can work really well in the absence of any changes in the driving fundamentals, but when the fundamentals change it MUST be respected.

Now admittedly the Chinese ruling caught the market by surprise, but there are plenty of other instances where changing fundamentals were telegraphed way in advance, but ignored by many. The early near-unanimous signalling of SegWit2x during the great coin split fear campaign of July was a great example of that.

So the next time you are reading someones post with pretty charts and lines on them, talking about triangles or cup and handles, have a look to see if they are paying any attention to the fundamentals of whatever coin they’re talking about. If they are ignorant (or ignoring) the fundamentals then they are vulnerable to committing the #1 mistake, and if you follow them on a trade the chances are you’re going to be vulnerable too.