Top Trading Lessons: Covid Stock Market Pandemonium or Calm Waters, Wait for Breakout Confirmation

2020 brought with it a challenging trading environment, one that likely pushed many investors, including myself, to the edge, testing our capabilities. What started as a record pace for the speed at which US equities entered a bear market – 20 days – eventually unfolded into a gravity-defying stunt of recovery and beyond in certain asset prices despite the global pandemic. Given these trading conditions, it is understandable for volatility to produce excitement and motivation for investors to find the best strategic opportunities, be it to support a ‘risk-on’ or ‘risk-off’ thesis in a correlated market.

But, if I had to pick one trading lesson to take away from this year, one that stays constant whether you are in a volatile or quiet market environment, it is to wait for confirmation of a breakout and be patient. Trying to pick turning points in trends is a notoriously difficult strategy, something that IG Client Sentiment (IGCS) positioning data frequently shows. Pre-emptively placing a bet instead of finding confirmation of a breakout, such as by using a close under/above a key technical level, can work against you if you remain stubbornly persistent. Standing aside for better opportunities, especially considering risk-reward parameters as well directional analysis, is a valid strategy that can help you tame losses.

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

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