How do you use psychology to improve your technical analysis?

Any analyst needs to realize that their internal biases are limiting their potential. A good technical analyst has to identify, acknowledge and then put checks on their biases. The most common biases are: 1. Confirmation Bias - Subconsciously force fitting patterns to confirm a prejudice. 2. Social Influence - If everyone is talking about it, doesn't mean everyone is correct. 3. Anchoring Bias - Relying on the first piece of information too much instead of doing a through analysis. 4. Overconfidence/Under-confidence - Letting a series of wins or losses affect your risk management. A good analyst needs to make sure they don't fall for any of these biases and have a well defined entry, profit taking, invalidation and reason for the trade.

Movies and social media romanticize people who catch the exact price of reversals of the market. This influence leads to the hero syndrome in a lot of analysts who instead of following the market trend are always trying to fight the market trend. Trying to fight the market trend is futile. It might be an ego booster for a few but its not a sustainable strategy. An easier and more effective strategy is to side with the market trend. Instead of trying to 'Fade' a large trend rather put efforts in finding 'Entry' into an ongoing trend. The entry prices might not look glorious to boast about on social media but it will definitely boost the win-rate and profit making would be less tiring.

An analyst and trader might extreme emotions of fear, greed, hope, regret or even euphoria at times. Its important to manage emotions to keep making sound decisions and ensure that the risk management and the trading strategy is followed at all times. Some common emotions and their root causes: Fear: Fear comes usually with position size of the trades that are too big of the account. Hope: When one doesn't have a defined invalidation and Stop-loss, they usually find themselves hoping and praying. Greed: When we have a series of wins, its important to keep greed in control and keep the position size and risk management still as a top priority. Trading is as much psychological as it is technical. Win over your emotions and win the market.

Its impossible to not take a loss or get it right 100% of the times as an analyst. There will be times when the ideas will go wrong or mistakes will be made. That's normal and its not something to fret about. The more important thing is what kind of learning a trader gets out of the losses and mistakes. Its ok to make mistakes but its not ok to repeat those same mistakes. To prevent yourself from repeating the same mistakes you have to journal all the ideas and trades. This journal will serve as a guide to the future you. Looking back at those journals will help you understand the mistakes and also help you identify the improvement areas in your overall strategy.

Having a hundred different indicators on your chart wont make your analysis any better. The best ideas are usually the simplest ideas. When it comes to trading, we can get overwhelmed with the plethora of information available. Recognizing the signal from all the noise is also an art that a trader has to master. A simple checklist that a trader needs to know before making a trading decision can be summarized as: 1. Larger context 2. Macro Trend within the context 3. Reason for taking the trade(Entry) 4. Exit(Profit taking) 5. Invalidation(Stop Loss) If one doesn't complete this checklist before taking a trade, then the trade plan is not yet there completely. Also, any tool that doesn't help in any of these checkpoint is probably just noise.

A good analyst has to always stay curious. Factors like liquidity, news events, market volume and participant sentiment affect the prices and the way market moves. The markets are dynamic and ever evolving because of these and a good trader/analyst has to be constantly curious to sense these changes as they happen. Curiosity means keeping an open mind to learning new behaviors, tools & style of analysis by other traders. It also means critically analyzing one's own methods and strategies and sometimes even giving up old strategies that don't work anymore on a particular asset. The best analysts are always curious and want to know what others are doing successfully instead of rejecting new ideas straight away.

In trading the markets its not the market vs you. Its generally you vs you. If you will ask any successful trader, how did they do it consistently and sustainably over a long period of time. The answer will always be psychology related. Its the mindset, personal system, risk management and the ability to conquer ones own emotions; that transforms a theoretical analyst into a good practical trader.