What is the reason why traders get the direction of the market incorrect in trading
I want to know your opinion on as to why traders make incorrect trades ? In other words why does the market direction go different to the one which we made a trade even after doing the TA
Why does one go wrong in technical ?
- is it because their knowledge of TA was not full ?
- is it because they made a mistake in TA ?
- is it that even the best TA would not have helped in a particular scenario
- is it because of a fundamental factor overriding the TA ?
I am asking because want to know - to what extent does getting TA right make sure the trade goes our way ? and if it dint go that way - does the only mean that the TA was wrong ? Or that the best of TA would be inadequate for this?
It's all a probability function. Nothing's going to be right 100% of the time.
There are ways of increasing the probability (of having the correct directional bias), but in general, the higher the probability one manages to achieve with any given method, the fewer will be the trading opportunities presented by the method.
Overall win-rate (which depends to a substantial extent on "getting the direction right") and overall profitability are two different parameters: it's easily possible to gain more, overall, from having slightly lower win-rates (due to slightly less accuracy of probable directional assessment), simply because of a greater frequency of trading opportunities.
For this and other reasons, nobody should assume or imagine that "predicting overall direction correctly" is the holy grail of trading: trade-management is more important. Like so much else to do with statistics and probability, of course, to many people it's very counterintuitive: it would be easy to imagine that because "getting the overall direction right" is a prerequisite to making profit from any individual trade, that it must collectively be "the most important trading skill" ... but that's actually far from the truth.
At its most simplistic level, and purely as a theoretical example, it's better to win an average of 10 pips an average of 6 times per day (or week, or month, or whatever) than it is to win an average of 20 pips an average of twice per day, etc.
Its all true what lexys says; even when you get the TA absolutely correct, the markets can still do something that was possible but very very unlikely. Obviously its possible to predict all the things the markets might do, but impossible to predict the single thing they definitely will do.
At the risk of being a bit starchy I have to point out right away that traders often take a position when there is actually no direction from the chart anyway or when the direction they prefer is less than 50% probable. Examples of the first situation would be catching a break-out from a range or chart pattern: of the second kind a reversal point in an established trend. Both of these look really dramatic and efficient on a historic price chart and to be fair they can bring dramatic profits - but at the cost of probably being wrong.
But its the way we are unconsciously pre-programmed. e.g. which is the better mountaineer? - the climber who ascends a 15,000ft peak or the one who climbs three 5,000ft peaks? I bet we would all say the first one.
One of the reason of such mistakes is maybe the very short-term timeframe you may use. For example, if you are using 1-hour chart then until you decide to place the trade the trend may change. So, I am suggesting you take the big picture for the tendency from daily charts.