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Dec 13, 2021, 12:11 PM

#1 Mistake Traders Make

By Carl Paraskevas - Chief Economist

In my 20+ years’ experience trading and advising on financial markets, I’ve seen both beginners and seasoned traders make one big mistake; they fail to correctly assess the current market trend with sometimes catastrophic consequence to their P&L. It is safe to say that having the wrong premises about current market conditions invariably leads to poor predictions about the future.

Proper trend analysis can help you avoid some of the most common pitfalls involved in trading, giving you that extra edge no matter your trading style: be it technical, fundamental or algorithmic. It also opens the door to a deeper understanding of more advanced forms of analysis.

Better yet, learning is easy, and the tenants are universal across any market you trade. You just need to recognise whether the market for a given timeframe is either: 1) in an uptrend, 2) a downtrend, or 3) rangebound.

It sounds so simple; you might think you don’t need to keep reading and can just eyeball   your charts. But, markets, whether trending or rangebound don’t move in a nice orderly linear fashion.

Impulsive & Corrective

To the contrary, when markets trend they typically move in consecutive waves composed of an impulse move in the direction of the larger trend followed by smaller corrective move in the opposite direction.

The #1 tip for traders is don’t confuse a corrective move for a change in trend. Markets, not only can, but most likely will, move in the opposite direction of their trend for a period.

Stay alert for the next article in our education series, where we will be discussing how to accurately determine whether a market is trending and in what direction.

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The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sales of any financial instrument. The information contained herein has no regard to the specific investment objects, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment decision. It is important to note that past performance is not indicative of future results. 

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