NCFM Technical Analysis common mistakes
NCFM Technical Analysis · Understand the traps and how to avoid them.
Treating Dow Theory's three types of trends (primary, secondary, minor) as interchangeable labels, and answering questions about a 'correction' without identifying which trend degree is being described.
Candidates memorise the three names as a list but never practise classifying a described price sequence into a degree, so they default to the label that sounds most familiar (usually 'secondary' for any pullback).
What to do instead
For every practice scenario, first fix the time horizon (primary = months to years, secondary = weeks to months, minor = days to weeks), then classify the move. Write the horizon next to your answer before choosing the option.
Confusing the confirmation requirement of Dow Theory (industrials and transports must confirm each other) with the confirmation rule of a chart pattern (a breakout must be confirmed by volume or a closing price beyond the line).
The word 'confirmation' appears in both contexts and candidates reuse whichever definition they learned most recently, ignoring the question's subject.
What to do instead
Before answering, identify whether the question is about inter-market averages or about a single pattern. If two averages are named, apply the Dow confirmation rule; if one security is named, apply the volume/close rule.
Identifying a head-and-shoulders or double-top pattern from shape alone and then quoting the measured-move target without checking whether the neckline was broken on a closing basis with expanded volume.
Pattern-recognition drills reward naming the shape, so candidates skip the validation criteria that the exam actually tests in the answer options.
What to do instead
Use a fixed four-point checklist for every pattern question: prior trend exists, shape symmetry, neckline break on a close, volume expansion on the break. Reject options that assume a pattern before all four are met.
Computing a measured move from the head rather than from the neckline (or from the pattern's widest point rather than the breakout point) and selecting the nearest-looking target.
Candidates remember 'measure the pattern' but not the anchor, and the wrong anchor often produces a number that appears among the distractors.
What to do instead
Write the formula before calculating: head-and-shoulders target = neckline minus (head to neckline distance); double top target = support line minus pattern height; flag/pennant target = flagpole length projected from the breakout. Then check which option matches your formula, not your arithmetic.
Drawing a trend line through two arbitrary highs or lows that happen to be visible, rather than through the two most significant swing points, and then treating a touch as a valid trend-line test.
Under time pressure candidates connect the two most recent points, which often produces a steep line that is broken almost immediately.
What to do instead
Require at least two clearly separated swing points with at least one intervening reaction, and prefer lines touching three points. Practise by drawing the line on a described series and stating how many touches it has before answering.
Answering that a broken support level 'becomes resistance' as a memorised phrase, without distinguishing a retest from a new support level or accounting for whether the break was on high volume.
The polarity rule is learned as a slogan, so candidates apply it even when the question asks about a level that was never broken or was broken and immediately reclaimed.
What to do instead
State the sequence explicitly: level held as support, level broken on a close, price returns to the level from below and fails, level now acts as resistance. Only select the polarity answer when the described sequence matches all four steps.
Choosing an arbitrary support or resistance level (a round number, a recent low) instead of the level with the most confluence, and ignoring the volume-at-price or multiple-touch evidence in the question stem.
Candidates anchor on the most visually obvious price rather than the level with the strongest historical reaction, which is what the exam rewards.
What to do instead
Rank candidate levels by number of prior touches, reaction size, and coincidence with a moving average or Fibonacci level. Answer with the highest-ranked level and be ready to say why the others rank lower.
Treating a bullish moving-average crossover as a buy signal regardless of the average's period, slope, and the price's position relative to it, and ignoring that a crossover lags in a range-bound market.
Crossover rules are taught as mechanical signals, so candidates forget that the same rule produces whipsaws when the averages are flat and price oscillates around them.
What to do instead
Before accepting a crossover answer, check three conditions: the longer average is sloping in the signal direction, price is on the correct side of both averages, and separation between the averages is widening. If the stem describes a flat market, choose the whipsaw/false-signal option.
Reading an oscillator as overbought or oversold and immediately predicting a reversal, without noting that in a strong trend the oscillator can remain in the extreme zone for an extended period.
The 70/30 thresholds are memorised as reversal triggers, but the exam tests the distinction between oscillator extremes in a range versus in a trend.
What to do instead
Classify the market regime first (trending versus ranging). In a range, treat extremes as reversal warnings; in a trend, treat them as continuation and look for divergence instead. Answer according to the regime described in the stem.
Sizing a position from the full account balance rather than from the distance between entry and stop, and then answering money-management questions with a fixed percentage of capital per trade.
Candidates confuse 'risk per trade' with 'position size' and skip the stop-distance step, which is the step the exam is testing.
What to do instead
Always compute in order: risk amount = account equity times risk fraction; position size = risk amount divided by (entry minus stop). Write the stop distance in the working before choosing an answer, and check that the resulting loss equals the intended risk fraction.