Top Trading Lessons for 2019
December 16, 2018
by the DailyFX Research Team
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Top Trading Opportunities of 2016
December 16, 2018
By the DailyFX Research Team
A good trader never stops learning, and every mistake is another potential learning experience. Here are
some of the top lessons our analysts learned, absorbed or suffered from our personal experience in 2018.
Ilya Spivak,
John Kicklighter,
Senior Currency Strategist
Chief Strategist
Adjusting to Changes in Market Volatility Can
Set Aside Time for Trading (Yes, Even Analysts)
Make or Break a Trading Strategy
Christopher Vecchio, CFA, James Stanley,
Senior Currency Strategist Currency Strategist
Don't Look Back, There's Nothing There for You The Difference Between Trends and Fads
Tyler Yell, CMT,
Michael Boutros,
Market Analyst
Currency Strategist
Market Spreads Can Focus Your Understanding
Market Extremes Do Exist… and Can Persist
of Sentiment
Paul Robinson,
David Song,
Market Analyst
Market Analyst
Selectivity is a Good Thing, but Being Overly
Staying Alert for Changes in Market Behavior
Selective is Not
Martin Essex,
Nicholas Cawley,
Market Analyst
Market Analyst
Timing Something as Erratic as the Brexit
Trade Set-Ups Need Time and Room to Work
Negotiations
David Cottle,
Justin McQueen,
Market Analyst
Market Analyst
Market Focus Can Switch Incredibly Fast, as
Be Patient, Always
AUD and NZD Showed
Daniel Dubrovsky, Dimitri Zabelin,
Market Analyst Market Analyst
Timing is Key, Don’t Let Adverse Price Avoid Apocalyptic Forecasts and Paralysis by
Movements Discourage You Analysis
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Peter Hanks, Rich Dvorak,
Market Analyst Market Analyst
Remember the Basis for Your Trade Complacency the Killer
John Kicklighter, Chief Currency Strategist
Set Aside Time for Trading (Yes, Even Analysts)
You'd think that establishing trade scenarios and executing them would be a routine practice for someone
whose day job is analyzing the markets. Yet that isn't exactly the case. While I do spend a majority of my
waking hours absorbing news and charts while interpolating the overlapping context of appetite or
struggle for different markets, the active time I apply to personal trade development is so often an
afterthought - if I remember at all. It is easy to get distracted when developing content for others, working
with different teams as part of a business or reviewing other analysts work. These efforts frequently
require my undivided attention and naturally follow a very specific objective (audience, specific asset or
analysis type, etc) that doesn't naturally follow my trading approach or interests. Sometimes, my analysis
'work' overlaps with my consideration for trade setups. Typically, this leads me to convincing trade
opportunities, but such occasions were frustratingly rare.
Just as with anything that we intend to pursue and/or improve upon, you need to do it in order to render
the desired effect. I simply need to evaluate the markets from an individual trader's perspective more
frequently. First and foremost, that means setting aside time to do exactly this at a regular interval. There
are so many waking hours in the day - and I already stretch that to its practical bounds - so assuming there
will be a little more time to change gears at the end of the day is unrealistic. Setting a calendar event for
myself so that I and other respect the time to do the dirty work will better ensure opportunities can be
rooted out. For others whose primary job is not trading, I know this will be even more crucial. 'Steal' time
from your day so that you can dedicate it to evaluating markets and fishing out trade opportunities. When
people don't make the requisite time, they have a greater tendency to simply let discretion (polite
interpretation from manic-depressive emotions) or others' views determine their choices. If we are in the
markets for the long haul so that we may build our account over time, one off tips and an unreliable
strategy will not cut it.
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Ilya Spivak, Senior Strategist
Adjusting to changes in market volatility can make or break a trading strategy
A glance at the widely cited VIX index – often somewhat hyperbolically referred to as a “fear gauge” –
reveals that overall market volatility rebounded from a 12-year low in 2018. This presented a problem for
my strategy of using the daily close as confirmation of technical developments. Larger price swings meant
that I was often late to enter desired trades. Since my stop-loss strategy was also linked to the daily close,
this also made for larger losses than had been accounted for.
The solution turned out to be rather simple. I continued to use the monthly, weekly and daily chart for
overall positioning analysis – thereby minimizing exposure to false-positive signals amid the noise of
shorter-term time frames – but shifted to the four-hour chart for entry and exit triggers. This allowed me
to both enter and exit trades sooner after a key technical barrier was breached, improving risk/reward
settings and allowing for larger gains while also reducing the size of losses.
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Christopher Vecchio, CFA, Senior Strategist
Don't Look Back, There's Nothing There for You
“There are decades where nothing happens; and there are weeks were decades happen.” For the 52
weeks in 2018, each felt like a year unto themselves. The newswires were never a letdown: the US-China
trade war; attempts at North Korean nuclear disarmament; the ongoing 2016 Russian election
interference investigation; the 2018 US midterm elections; the rollercoaster that’s been Brexit; the
election of a populist government in Italy, now standing off with the EU; the teetering of the Macron
presidency in France; among others.
With so many exogenous influences, the newswire was easily the most potent source of risk for traders.
But that wasn’t necessarily a good thing. One of the common themes in questions among clients this year
was “How do you find success consistently in an environment where a piece of news can turn your analysis
upside-down?” This wasn’t exactly an environment that catered to easy decision-making for traders.
So, if you’ve had a less than optimal year with your trade results, the solution at the end of 2018 is simple:
don’t look back, there’s nothing there for you. If 2018 was a rough year, pick up your marbles and move
on to 2019. The scope of exogenous interference into financial markets this year is reminiscent of what
was seen in 2011, when traders grappled with the dueling concerns of the US debt ceiling (and eventual
downgrade) and the European debt crisis. Focusing on ‘what may have been’ will prevent you from
achieving ‘what is still possible.’
The point here is that paying too much attention to ‘results’ of your recent trades over a short time horizon
and not enough about the ‘process’ can permanently damage your ability to achieve success over the
long-term. Result-oriented people often seek the shortest-path to the solution, disregarding the steps
along the way; speed is key. Results can be difficult to replicate for result-oriented people. Process-
oriented people, while initially slower, focus on the steps of the solution, so as to create a sustainable
procedure; longevity is key.
For 2019, keep things simple. Identify the trading environment (Range? Breakout? Momentum?) then
apply the appropriate strategy. Ignore the news as much as you can. Don’t fall into the trap of using
excessive leverage to make up for perceived missed opportunities. Focus on building a sustainable trading
strategy that will stand the test of time – i.e. help you manage your risk to allow you the chance to exploit
profitable opportunities – and the results will eventually come.
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Michael Boutros, Currency Strategist
Market Extremes Do Exist… and Can Persist
One of the largest market movers this year was the massacre seen in crude oil prices. In just two months
WTI dropped more than 34% after breaking below multi-year technical support. How extreme was the
sell-off? Well, it was marked by a record-setting twelve-day decline which resulted in seven-weeks of
consecutive losses (not seen since Q3 2015) with November posting the largest single-month decline in
crude prices since the depths of the Financial Crisis (October & December 2008). The adage, ‘markets can
stay irrational longer than you can stay liquid’ was personified this year in crude prices and is a stark
reminder that trying to time market turns based on ‘price extremes’ can often be a fool’s errand.
At the end of the day it’s critical to always keep your focus on price – and trade what you see. Identifying
extremes in price is NOT a trading strategy nor should it prompt a trade. Rather recognizing the condition
should set off alerts – if you have open exposure in the direction of the extreme- Enjoy the ride and hold
on! Keep an eye on how price reacts at key technical levels on the way- this is where the ‘extreme’ could
offer an opportunity. Understanding this simple yet subtle concept will help you become better equipped
to deal with price extremes – and more importantly – know what not to do.
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Tyler Yell, CMT, Market Analyst
Market Spreads Can Focus Your Understanding of Sentiment
Utilizing spreads in the market is a great way to understand how investors are pricing in two similar, albeit
separate invents. The most famous spread in 2019 has been the USYC2-10. This spread shows the yield
difference between the US Treasury 2yr Yield and US Treasury 10yr yield. Another way to think of it is
what yield would an investor net out who sold US Treasury 2yr or front-end debt and bought UST 10yr
debt. In a healthy economy, the threats of inflation and growth should cause the 10yr yield to be higher
than the 2yr by a large margin. For example, in 2010 when the US was crawling out of the great financial
crisis, the spread was 293bps. In January, the spread hit 78bps. However, it dropped 9bps in November
whereas an inversion is expected to precede a recession and would likely lead to an even more significant
pullback in stocks. A re-widening would likely show a crisis has been inverted thought going into 2019; I
wouldn’t hold my breath for that outcome. Other key spreads worth watching are interest rate futures
that show Fed rate hike probabilities and crude oil that shows supply imbalanced.
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David Song, Currency Analyst
Staying Alert for Changes in Market Behavior
Key developments surrounding the U.S. heavily influenced financial markets in 2018 as the Federal
Reserve carried out its hiking-cycle, while the Trump Administration embarked on major changes in trade
policy, and upcoming themes may continue to sway investor sentiment in 2019 especially as the European
Central Bank (ECB) concludes its asset purchases under the quantitative easing (QE) program.
Market participants will need to stay alert in 2019 as the ECB warns the ‘balance of risks is moving to the
downside owing to the persistence of uncertainties related to geopolitical factors, the threat of
protectionism, vulnerabilities in emerging markets and financial market volatility,’ and the shift in global
monetary policy paired with the ongoing threat of a U.S. and China trade war may continue to impact risk-
taking behavior as investors adjust to the changing landscape for the world economy.
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James Stanley, Currency Analyst
The Difference Between Trends and Fads
Last year, my takeaway lesson was to be a bit more open-minded on new market themes. I almost
completely ignored the crypto craze as bitcoin was surging in 2017, and while my intent was never to load
up on long positions or to change my approach to incorporate a crypto-heavy focus, I did want to
investigate why I was so cynical on the matter. Maybe another new market theme would pop up in the
future, and I didn’t want my absolute avoidance to rule out the possibility of riding at least some of the
wave. Well, cryptocurrencies completely crashed this year and as the end of 2018 nears, it’s become
rather clear that there are a series of structural issues around the matter. While this doesn’t rule out the
possibility of a comeback, it does highlight the importance of a trader’s consistency in a very uncertain
market environment. Cryptocurrencies, at this point, look to have been nothing but a fad. But, as that fad
was building, there were numerous trends of a worthwhile nature, each of which I had missed out on. My
lesson for this year is to continue to try to be more open-minded, while still sticking to my approach.
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Paul Robinson, Currency Analyst
Selectivity is a Good Thing, but Being Overly Selective is Not
Looking back on the year one of the more glaring mistakes I made was being overly selective at times. My
goal heading into last year was indeed to be more selective with volatility so low across the board, and
while it is generally better to under-trade than over-trade, like most anything a balanced approach is best.
With that said, there were several times throughout the year when waiting for ‘perfection’ resulted in
cost opportunities, and with higher volatility looking likely to be ahead (already here in equities), it’s time
to gravitate towards a more aggressive approach.
The fix for this issue: Take a small-sized position when enough factors align which constitute a quality set-
up, and at the very least by doing this I can capture a move with at least some size, even if it’s not with an
ideal amount of risk on the table.
What can also result from this, aside from the obvious (making a profit), is the building up of confidence
in a trade set-up I may have once past over. In the future, with enough time spent behind the wheel
trading the ‘new, less perfect’ set-up, enough conviction can be built up to start trading it with a full-sized
position.
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Martin Essex, Market Analyst
Timing Something as Erratic as the Brexit Negotiations
This time last year I wrote that the 2017 climb in the British Pound against the US Dollar on perceived
progress in the Brexit talks was unlikely to persist into the first quarter of 2018 because of the shambolic
approach to the Brexit talks by the UK government. That proved to be wrong as GBPUSD continued to
advance in Q1 and it was not until the second quarter that it began to lose its gains. The theory was
correct, but the timing was wrong, and as every seasoned traders knows timing is everything. The logic
was right but as Keynes said in the 1930s: “Markets can stay irrational longer than you can stay solvent.”
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Nicholas Cawley, Market Analyst
Trade Set-Ups Need Time and Room to Work
A common mistake but one that every trader - including yours truly - can make is not giving a trade set-
up the required space and time to play-out. It is all too easy to believe (hope) that your qualified trade
set-up is going to spring into life after you have hit the trade button and that the market will go your way
without troubling your stop-loss. This has lead me into bad habits; not setting my time frame/s correctly
and setting my stops too tight, thereby not giving my trade the required room to play-out. Technical and
fundamental analysis can open doors and suggest trades, but discipline and patience are required to let
these set-ups work. There is nothing more frustrating than being stopped out of a trade only for you to
see it turn and move as you predicted!! This can then be compounded by trying to ‘force’ yourself back
into a trade at levels that are not warranted – a loss of discipline.
Going forward I will be setting more realistic (longer) time frames and will give the trade more respect
and room by setting wider stop-losses and targets. I will stick to the correct risk/reward ratios I have used
before but will widen them where the trade allows and will give my trade, and expectations, more time
to play-out. I may trade less, and miss some short-term opportunities, but hopefully my P/l will show the
benefit from a more considered, and realistic, approach to trading.
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David Cottle, Market Analyst
Market Focus Can Switch Incredibly Fast, as AUD and NZD Showed
The Australian and New Zealand Dollar’s dramatic October break of downtrends which had previously
endured all year took me very much by surprise. After all the dominant feature of this market- interest-
rate differentials had hardly changed. The US Dollar remains more attractive than either on simple
comparisons and, with the Reserve Banks of neither Australia or New Zealand thought likely to raise base
rates from record lows in 2019, will probably remain so even if US rates rise by less than the markets had
thought. The lesson here is that market focus can switch on a dime to other matters, in this case a revival
of overall risk appetite, even if the dominant driving factor remains in place.
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Justin McQueen, Market Analyst
Be Patient, Always
Looking back on 2018 a lesson I have learnt is being patient. While you may have a well thought out trade
idea, on occasions timing can be a little off, resulting in a trigger of your stop-loss before the trade
eventually moves in the way you expected. Like many, traders can be sometimes too eager to jump into
a trade whenever an opportunity arises in the fear of missing out. However, by being patient and waiting
for the best opportunities to align themselves the right trading setup can arise. Patience is a virtue.
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Daniel Dubrovsky, Market Analyst
Timing is Key, Don’t Let Adverse Price Movements Discourage You
In 2018, I learned a couple of lessons to help me become a better trader. When combined, they can have
a devastating effect should you not have an appropriate risk-reward strategy. Fortunately, I did and
significant losses were avoided. The first mistake is taking too long to act on a long-term fundamental
forecast, especially when the anticipated trend is already playing out. The second is getting out of a losing
trade without confirming a reversal. When combining these mistakes, it resulted in me taking bigger hits
than expected. On top of that, I watched prices go back in the right direction after closing trades at a loss.
This happened to me when I shorted EUR/USD and AUD/CAD. In the first, I sold in early May after the pair
had already been in an extended decline. Then I was hit by a large candle going in the opposite direction,
causing me to close my trade in fear of a lasting reversal. In the second, it was a similar scenario that
happened in early August. Had I used technical analysis more accurately define longer-term trends and
have acted sooner, I would have performed much better this past year.
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Dimitri Zabelin, Market Analyst
Avoid Apocalyptic Forecasts and Paralysis by Analysis
My top trading mistake in 2018 was my lack of timely execution that was supported by my overly-cautious
approach to trading. Despite the majority of my political economy analyses accurately forecasting what
was to come, a broad range of risk-inducing factors held me back from executing my trade.
An example of this was the hysteria surrounding fears of an emerging markets contagion that dominated
headlines in August and September. I became more risk averse than was optimal and while I did not lose
money, I certainly did not gain as much as I could have. My trading strategy for next year will be to move
away from counterproductive risk-aversion and more toward action-oriented trading.
Peter Hanks, Market Analyst
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Remember the Basis for Your Trade
One of the trading aspects I find most difficult is letting a trade ride. Often, once I am firmly in the green
or firmly in the red, the temptation to modify or exit the position is immense. While it may be ok to alter
the position’s size or shift a stop, exiting a trade early has cost me considerable profits. That being said,
my top trading lesson for 2018 is to remember why you entered the position in the first place. Listen to
your analysis and stay true to your trading style and typical timeframe. Write and highlight your key points
and levels down if necessary but stand firm on your original idea and levels even in the face of blossoming
profits.
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Rich Dvorak, Market Analyst
Complacency the Killer
Chatter of the popular trade coined ‘BTFD’ – an acronym standing for “Buy the F*ing Dip” – spread like
wildfire among traders and leading financial media outlets like Bloomberg, CNBC and the Wall Street
Journal. BTFD buzz picked up during the second and third quarter of 2018 as the S&P500 reclaimed and
later surpassed its peak in January. The resilience of the broader stock market brought healthy returns to
bullish traders who listened to BTFD hype during the first 9 months of the year. Although, as is the case
with many fashions of the physical world, things tend to keep working until they do not. Such is true for
BTFD, resulting in a top trading lesson from 2018.
Evolving from the proverbial “Buy and Hold” tactic implemented by traditional investors, BTFD formed as
the trendier – albeit riskier – investment strategy aimed at exploiting dips in a seemingly unstoppable bull
market. Assuming an investor implemented the BTFD strategy by investing $5,000 into the SPDR S&P500
Index ETF ($SPY) every week the market dropped more than 1 percent during 2018, he or she would be
worse off as of December 14 than if their funds were fully invested at the start of the year.
In fact, the once-highly touted BTFD trade has underperformed the fully invested approach by 2 percent
as illustrated in the graphic above as dismal performance in the fourth quarter killed the market’s returns.
Consequently, the top trading lesson from 2018 is to avoid complacency. For one, it is extremely difficult
to time buying the market’s bottom perfectly which leads to actual results that are worse than expected.
Secondly, investment decisions should be made only if intrinsic fair value exceeds current market price –
not because the trade is trendy or the strategy was profitable in the past.
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