Wishful Technical Analysis

All beginner technical traders stumble upon

There are countless successful traders who place technical analysis at the very core of their profit-making strategy. Watching how they execute their ideas, it all looks deceptively easy.

In a sense, it is easy—provided you’ve put in enough screen time with charts and have clear, disciplined rules in place. Stop loss levels, in particular, are non-negotiable.

But here’s the catch: because technical analysis involves a degree of creativity, it’s dangerously easy to start seeing what you want to see. You might find yourself justifying almost any crazy idea.

One common trap? Being overly flexible with stop loss levels.

You start drawing new lines—not to improve your analysis, but to rationalize staying in a losing position instead of executing a swift, decisive stop loss.

Let’s break this down with an example inspired by real-life data.

STAGE 1

This is amazing. AMZN has been forming an incredible bull flag. It’s only a matter of time before it breaks out! If I enter at the support line, I’m golden. Easy win.

STAGE 2

Oh… it broke down. Okay, but wait — it’s forming a new support line. Considering the overall bullish trend, it’s almost certain this level will hold and the uptrend will resume. I’m keeping it!

STAGE 3

Unbelievable, it just broke the new support 🤦‍♂️.

This loss stings, but come on — the new red support line looks rock solid. There’s no way it fails. It’s bound to revisit the original green bull flag soon. I’m holding. It can’t get worse, right?

STAGE 4

I give up. I’m 50% down. This is a bear market, and it’s going to take years for this thing to recover. I’m selling my long now and will short it instead.

In this example, the downtrend ended here and we have been living happily ever after… at least so far.

It took two years from the original breakdown to reclaim the same level once again.

Sure, it’s fine to go through these cycles with long-term investments. But in the world of trading, this is how accounts wither and profits are destroyed.

Technical analysis is a great tool if you follow the methodology. Every successful trader has their own flavor to it. You should develop one too — as long as it’s not about trying to find new lines to help you lie to yourself.

Actionable takeaways

• Reality Check: Ignore the market noise. Only act on clear signals. Wishful patterns are your worst enemy, destroy them.

• Rigorous Testing: Backtest before trusting; patterns must prove to be effective. Nothing trains you better than hundreds of hours of screen time.

• High-Probability Focus: Trade quality setups, not quantity; ignore wishful low-chance trades.

• Expectation Management: Set realistic goals. Losses are part of trading, manage them wisely.