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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.

Top Lessons:

  • John Kicklighter, Chief Strategist: Set Aside Time for Trading (Yes, Even Analysts)
  • Christopher Vecchio, Senior Strategist: Don't Look Back, There's Nothing There for You
  • Ilya Spivak, Senior Strategist: Adjusting to Changes in Market Volatility can Make or Break a Trading Strategy
  • Nicholas Cawley, Market Analyst: Trade Set-Ups Need Time and Room to Work
  • James Stanley, Currency Strategist: The Difference Between Trends and Fads
  • David Cottle, Market Analyst: Market Focus Can Switch Incredibly Fast, as AUD and NZD Showed
  • Martin Essex, Market Analyst: Timing is Everything, Especially with Overarching Themes Like Brexit
  • Paul Robinson, Market Analyst: Selectivity is a Good Thing, but Being Overly Selective is Not
  • Justin McQueen, Market Analyst: Be Patient
  • David Song, Market Analyst: Staying Alert for Changes in Market Behavior
  • Michael Boutros, Currency Strategist: Market Extremes Do Exist… and Can Persist
  • Tyler Yell, CMT, Market Analyst: Market Spreads Can Focus Your Understanding of Sentiment
  • Daniel Dubrovsky, Market Analyst: Timing is Key, Don’t Let Adverse Price Movements Discourage You
  • Peter Hanks, Market Analyst: Remember the Basis for Your Trade
  • Dimitri Zabelin, Market Analyst: Avoid Apocalyptic Forecasts and Paralysis by Analysis
  • Rich Dvorak, Market Analyst: Complacency the Killer

To See the Top Lessons From Each of Our Analysts, Download the Guide on the DailyFX Trading Guides Page.

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.

James Stanley, Currency Strategist:

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.

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.

Top Trading Lessons of 2018

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.

To See the Top Lessons From Each of Our Analysts, Download the Guide on the DailyFX Trading Guides Page.

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