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Top 2022 Trading Lesson: The Forest and the Trees

Top 2022 Trading Lesson: The Forest and the Trees

James Stanley, Contributor
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It’s been a riveting year for price action. Bears made a big move in US equities in January and that’s led to a constant push-pull impact through this year. With bearish waves in Q1, Q2 and Q3 all seeing some form of support during the quarter, only for sellers to make a re-appearance.

In Q1, that bearish move quickly priced-in after the S&P 500 topped on January 4th. That led to a knee-jerk low on February 24th, the same day that Russia invaded Ukraine. And then after the Q2 open, bears made another strong push, which ran to a low in mid-June, right around the FOMC’s first 75 bp rate hike in 40 years. That bounce lasted into August, at which point Chair Powell really wanted to get his point across, and he helped to reverse the bullish trend with another fresh low setting on October 13th. And that then led to a two-month-bounce into December.

This year was amazing for price action traders as the trend changes were even relatively clean. I missed most of the bounce in June, but I learn quickly, and was bullish for a portion of the October bounce. But, it’s from that lesson that my top lesson for this year emanates…

I’m a pretty confident trader and analyst, perhaps too confident at times. I track numerous timeframes across multiple markets and normally, I’m pretty decent at picking my spots. But with the risk cascade this year, I feel that all of that flexibility became a detriment. Because when we did get one of those rather clear trend changes, in February, June and then again in October, there were so many factors that I was tracking that I was able to retain a bearish lean, even when price action wasn’t bearish.

I didn’t notice this until about mid-way through the year but I had started to fall victim to the same trap that catches many traders, thinking that my ‘instinct’ was more probabilistic than it was. That the big picture bias that I was observing and previously operating with too important to ignore. I didn’t want to miss ‘the big short’ that I had been toying with for the better part of the past 10 years.

But, the reality is, markets are a constant stream of opportunity flow that can also be costly, and at no point can they be cornered into a position where they have to move in a particular direction. And one of the major costs of being wrong, especially staying wrong, is that it’s that much less time that one can be ‘right.’

So, while it’s important to hold on to conviction, it’s also important to be adaptable with the constant realization – that no matter how right you may have been – markets will remain as unpredictable and it’s just when much of the market gets short in anticipation of a bearish breakdown that markets start to do the opposite.

As for rectification – this is a change that I’ve already made and something that I’ve done in the past, but I’m going to limit my timeframes in effort of taking a more objective stance towards macro matters. I’m going to limit my usage of 4-hour and other intermediate-term charts. This is largely because my style is either taking longer-term positions or short-term setups, and I noticed that the h4 chart was one of the noisier variables for me. This will mean more usage of the daily and weekly charts, along with the 30 minute and 2 hour chart for shorter-term setups.

This is a key reminder that you don’t have to master everything in trading. You just have to be really good at the one segment of the market that you concentrate on because, at the end of the day, it’s not about ‘being right’ or getting every swing timed perfectly. It’s about the bottom line and if that means going against my own bias, so be it.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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