TOP TRADING

LESSONS OF
2019
DAILYFX RESEARCH TEA M
TOP TRADING LESSONS OF 2019

DailyFX Research Team

Table of Contents
Top Trading Lessons from 2019 .................................................................................................. 3

John Kicklighter, Chief Currency Strategist........................................................................................... 5

Jeremy Wagner, CEWA-M, Head Trading Instructor ............................................................................. 6

Ilya Spivak, Senior Currency Strategist .................................................................................................. 7

Christopher Vecchio, CFA, Senior Currency Strategist ......................................................................... 7

James Stanley Currency Strategist........................................................................................................ 8

Michael Boutros, Technical Strategist ................................................................................................... 9

David Song, Currency Strategist........................................................................................................... 10

Paul Robinson, Currency Strategist ..................................................................................................... 10

Martin Essex, MSTA, Market Analyst & Editor..................................................................................... 11

David Cottle, Analyst ............................................................................................................................. 11

Nicholas Cawley, Analyst...................................................................................................................... 12

Daniel Dubrovsky, Analyst .................................................................................................................... 13

Justin McQueen, Analyst ...................................................................................................................... 14

Dimitri Zabelin, Junior Currency Analyst ............................................................................................. 14

Peter Hanks, Junior Analyst ................................................................................................................. 15

Rich Dvorak, Junior Analyst .................................................................................................................. 15

Mahmoud Alkdusi, Market Analyst ...................................................................................................... 16

Disclaimer..................................................................................................................................17

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Top Trading Lessons from 2019

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 2019.

Click on each one of the boxes below to learn more.

John Kicklighter: Jeremy Wagner, CEWA-M:

Chief Currency Strategist Head Trading Instructor
Global Markets Aren't a Two Player Game It Ain’t Over ‘Til It’s Over

Ilya Spivak: Christopher Vecchio, CFA:

Senior Currency Strategist Senior Currency Strategist
Don’t Underestimate the Markets’ Capacity for Make the Plan, Trade the Plan; Don’t Succumb
Wishful Thinking to Paralysis by Analysis

James Stanley: Michael Boutros:

Currency Strategist Technical Strategist
Technicals Hold All the Weight, Not the Click- Technicals Hold All the Weight, Not the Click-
Bait Bait

David Song: Paul Robinson:

Currency Strategist Currency Strategist
Rely on Price Action When Fundamentals Allowed Too Much ‘Wiggle’ Room on
Don’t Make Sense Profitable Trades in Wrong Environment

Martin Essex, MSTA: David Cottle:

Market Analyst & Editor Analyst
Global Economic Weakness Should Damage Not Letting My Profits Run to Target
the Oil Price, So Why Didn't It?

Nicholas Cawley: Daniel Dubrovsky:

Analyst Analyst
Not Letting My Profits Run to Target The Critical Task of Learning to Lose
Gracefully

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DailyFX Research Team

Justin McQueen: Dimitri Zabelin:

Analyst Junior Currency Analyst
Don’t Fight the Fed Trust Your Fundamental Analysis and Ignore
the FOMO

Peter Hanks: Rich Dvorak:

Junior Analyst Junior Analyst
Remember the Basis of Your Trade Stay Cognizant of Cycles and Seasonality

Mahmoud Alkdusi:
Junior Analyst
Remember the Basis of Your Trade

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John Kicklighter, Chief Currency Strategist

Global Markets Aren't a Two Player Game

How often do you catch yourself referring to trades or analysis as an effort to 'beat the market'? For
myself, the answer is far too often given the fallacy in logic that it can represent. As humans, our
brains tend to simplify complex systems so as to come to an answer on an open-ended question or
decision to a problem with to many variables. That can be a good thing, because it can help us
make decisions rather than be frozen and overwhelmed. That said, there are certain efforts we
should make to avoid over-simplifying or pursue a perspective that is more the result of expedience
rather than a rigorous method to determine what matters most.

The trouble with mentally positioning yourself against 'the market' is that it presumes that we are of
equal scale and consequence to the collective capital in the vast financial system. That is a
ridiculous notion purely on the face of it. Short of a top central bank (with a very dubious mandate)
or government, we cannot fend off, override or even distort the (liquid) markets. What we can do is
take advantage of the changing priorities of the majority or the inconsistencies in conflicting needs.

This is one of the concerns that I have with technical analysis. While a great technique that I believe
should have a place in all traders' toolkit, it is too often considered an objective evaluation of the
market at large. The vast majority of capital flowing through the FX market - and most other capital
markets - was set into motion without consulting a chart. Central banks, large financial institutions,
clearing banks, most hedge funds, etc very rarely use chart analysis for decisions. That leads many
to believe that the chart shows their collective conscious decision making which can be plot out
nicely. Yet, if it were that easy, we wouldn't have false moves, reversals or changes from one market
type to another (such as range to trend).

When I start my analysis or trade evaluation with the understanding that I'm trying to discern what is
important to the majority of capital - not people or entities as there is a disproportionate amount of
wealth to certain market participants - I better align myself to probabilities. The trades where I
attempted to place the emphasis on a technical pattern to the detriment of the systemic capital flow
(fundamentals) ended up struggling. An example was USDMXN which turned in a broad range this
past year but follow through fell apart without a stronger reason for more capital to chase the move
like a USMCA lever, significant growth upgrade, higher rate forecast, etc.

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DailyFX Research Team

On the other hand, when I take the time to first evaluate what the most recognizable driver for
market participants to shift capital either at present or in the near future, I am attempting to find a
source of momentum. Trade wars, recession fears and monetary policy forecasts were three key
matters through 2019 and will likely remain critical in 2020. So, when I can establish that a critical
theme is starting to shift the financial tides, find a catalyst that can cater to and accelerate the top
concern and identify a technical pattern that can help me layout a complete position (entry, stop,
target/s); that is my ideal confluence of analysis. I need to pursue much more of that in 2020.

Jeremy Wagner, CEWA-M, Head Trading Instructor

It Ain’t Over ‘Til It’s Over

So many tears I’ve cried

So much pain inside

But baby it aint over ‘til it’s over…

-- Lenny Kravitz

2019 was a long, slow, slog lower for EUR/USD. The wave lower was anticipated to be a corrective
wave. The sloppy, choppy, and overlapping nature of the trend lower lived up to its expectation.
With the trend looking and acting as expected, it didn’t end WHEN expected. There were several
false starts that gave me the impression the new uptrend was beginning. The market was trying to
fool the most people most of the time and continuing to chop lower lulled traders to sleep. Was
October 1, 2019 the turn?

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Ilya Spivak, Senior Currency Strategist

Don’t Underestimate the Markets’ Capacity for Wishful Thinking

The bellwether S&P 500 stock index is poised to finish 2019 at record highs. Looking at price action
alone, one might surmise the past 12 months were marked by robust growth and benign policy
driving healthy risk appetite among cheerful investors. Were one to skip the price chart and
summarize the year’s top macro stories instead, a negative slope might be expected. Most of 2019
was spent fretting about a downturn in the global business cycle, an escalating US-China trade war,
and a disorderly Brexit wherein the UK might’ve crashed out of the EU without a plan.

Where, then, did markets find fuel for gains? Building Fed rate cut expectations were an early
excuse, followed by those bets’ eventual realization. Headlines touting the probability of a US-China
trade pact and the likelihood that a Conservative victory in the UK general election would banish no-
deal Brexit risk emerged as a latter-year catalyst, long before they looked actionably plausible. This
underscores that markets oftentimes seem to want to give supportive narratives the benefit of
doubt. That is because a substantial cross-section of participants is never truly “short risk”. Pension
funds, endowments and similarly long-term vehicles don’t tend to proactively bet on weakness.

This means that it is inherently challenging to find follow-through on bouts of risk aversion, no
matter how justified it may be. Equities – the broader markets’ go-to bellwether for sentiment trends
– seem to exhibit long-side bias, resisting bearish arguments until liquidation looks truly
unavoidable. There is a warning here for traders: betting on risk-off capitulation is an uphill battle,
reasoned fundamental arguments notwithstanding.

Christopher Vecchio, CFA, Senior Currency Strategist

Make the Plan, Trade the Plan; Don’t Succumb to Paralysis by Analysis

If you were paying attention, 2019 was a unique year for financial markets: rare has been the
occasion that traders had to deal with such heavy-handed, direct commentary from the President of
the United States with respect to the Federal Reserve or the performance of equity markets.

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Given the scope and scale of some of the comments made by the 45th president, it was easy for
traders to overinterpret or underappreciate various words when trying to decipher the true intentions
of one of the world’s most influential figures in the global economy. Filtering out the noise to find
the signal – the actionable trade – became a more laborious task in 2019 than in years past. For
many traders, this was a hapless effort as markets climbed the seemingly endless ‘wall of worry.’

Nevertheless, the traders that were able to successfully navigate the tempestuous market
environment were those that were ruthless practitioners of basic risk management principles:
cutting losers; letting winners run; and letting risk define position size, not opinions on the latest
news and rumors coming from social media. Predictions regarding the return of volatility proved
wrong, again, for example.

In this market environment that’s unique like no other, it pays to be objective; it does not pay to be
subjective. Looking ahead to 2020, this environment is likely to persist. Traders are best suited by
defining the conditions for their various trading strategies, formulating risk management plans, and
executing on their trades. Those that subjectively chose when to follow their systems and trade
signals are the ones allowing short-term emotions to dictate outcomes – which is never advisable.

James Stanley Currency Strategist

Contrarianism and the Madness of Crowds

In a social media age it’s easier than ever to get swept up in the public mood, particularly around
social or even political issues that take the world by storm. This is such a profound theme that
people around the world can get just enough information to form their own opinions, even on
matters that don’t directly impact them. This was fairly common around the Brexit referendum
which, without a doubt, carried huge implications for both UK and European citizens but,
nonetheless evoked emotion around-the-globe, the US included.

It was almost impossible to ignore the acrimonious discussions from across the Atlantic and what
looked to be a dire situation without a shred of hope only a few months ago now appears to be on

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safer footing, illustrated well in the British currency as an aggressive sell-off through the summer
caught support and soon turned into an aggressive bullish breakout.

The top lesson from this year is in just how much value that public mood or emotion actually
carries, and GBP/USD is a pretty strong illustration of just how little importance traders should place
on that. The fact of the matter is that in a given career, a trader is going to place thousands of
trades. Many of those trades will add very little to the bottom line while a few will surprise, and
those surprises can be in either hurtful or helpful manners.

In currency markets, there will be very few 1,000-1,500 pip trends available; and to grasp those, the
trader will likely need to have the ability to stand against the crowd and against public sentiment to
get on the right side of the trade, particularly around important turns. To do this, one must have little
attachment to their social initiatives or drives or opinions and, instead, place the value of the setup
first and foremost as far as their work on the chart is concerned.

Michael Boutros, Technical Strategist

Technicals Hold All the Weight, Not the Click-Bait

Heading into the start of 2019, the news headlines and financial publications would have had you
thinking the UK economy was going into a tailspin with many calling for parity on GBP/USD as
concerns over a disorderly Brexit continued to take root. While no deal has yet been reached
heading into the final days of December trade, Sterling is poised to close markedly higher on year
after rebounding sharply off the 2016 post-Brexit lows in early September. So, what gives?

They might make for snazzy titles and garner a lot of pageviews, but when it comes to trading, the
headlines are the last place you should base your trade ideas. At the end of the day, you are trading
price action – not headlines, central bank policy, or inflation expectations – but rather the reaction
to these releases. Let the technicals be your guide, and the headlines be your trigger – Always
remember, markets do not reward the masses and when it comes to viable trade opportunities, the
perceived ‘conventional wisdom’ is oftentimes anything but.

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David Song, Currency Strategist

Rely on Price Action When Fundamentals Don’t Make Sense

Major developments coming out of the US swayed the financial markets throughout 2019 as the
Federal Reserve delivered three consecutive rate cuts in response to the shift in trade policy.
Despite the weakening outlook for the world economy, global equity prices traded higher throughout
the second half of the year, with US indices like the S&P 500 climbing to a record high.

The price action does little to reflect the slowdown in the global economy even though the inverting
US yield curve fueled fears of a looming recession. For 2020, relying on price developments may
help to identify and adapt to potential changes in market behavior as major central banks take a
proactive approach in managing monetary policy.

Paul Robinson, Currency Strategist

Allowed Too Much ‘Wiggle’ Room on Profitable Trades in Wrong Environment

Coming into 2019 the top takeaway from the year prior was that I was a bit too selective as a result
of trying to adjust to the low-volatility environment, so I decided to loosen it up a bit even if meant
taking some trades with less-than-normal trading size. This turned out to be a good adjustment,
however…

In loosening up, I also allowed the ‘hope’ for higher volatility to impede on my judgement as to how
far I should allow profitable trades to run. I always set multiple targets for trades, but in extremely
tight trading conditions (DXY range smallest in 40+ years), not very often did trades run beyond the
first level before reversing.

This meant that a lot of trades got to or near the tier one target level only to reverse and be closed
out at a small or zero profit. While this isn’t a terrible thing like allowing trades to blow past stop-
losses, it made getting any good traction for the year a persistent challenge. The fix here is to
become more aggressive about profit-taking until there is clear evidence of a regime change in
volatility.

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Martin Essex, MSTA, Market Analyst & Editor

Global Economic Weakness Should Damage the Oil Price, So Why Didn't It?

Analysts and traders spent much of 2019 worrying about weakening global economic growth, and
they were right to be concerned. As the International Monetary Fund reported late in the year, after
slowing sharply in the last three quarters of 2018, the pace of global economic activity remained
weak.

Momentum in manufacturing activity, in particular, weakened substantially, to levels not seen since
the global financial crisis, while rising trade and geopolitical tensions increased uncertainty. Lower
growth means less demand for crude oil so the oil price should have fallen back – but it didn’t.

In fact, the oil price rose steadily throughout the first four months of 2019 before falling back and
then broadly its ground. So why did it end the year higher than it began it? The lesson is simple:
prices are driven by supply as well as demand so it’s important to look at both. The OPEC cartel and
its allies including Russia, once considered a busted flush, proved surprisingly capable of cutting
output to counter extra production from non-OPEC countries like the US, Brazil and Norway.

The lesson is clear – do not write off the ability of suppliers to compensate for lower demand.
There’s a third factor to take into account too: inventories, and that means the weekly stockpiles
data from the US Energy Information Administration need to be monitored carefully as well.

David Cottle, Analyst

The Bank of Japan Will Stick to its Guns

Unlike every other major traded currency, the Japanese Yen tends to trade with almost complete
indifference to its domestic economic data cycle. This is because, while the monthly data round
may alter interest rate prospects for all the rest, in Japan it doesn’t.

The Bank of Japan remains publicly committed to its extraordinary program of monetary easing
until annualized consumer price inflation gets sustainably above 2%. Now it hasn’t been sustainably

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DailyFX Research Team

above 2% since 2015 and, at last look, was running at just 0.5%. This is scant reward for stimulus
which has seen the Bank of Japan’s balance sheet rival, then exceed, the country’s Gross Domestic
Product.

Given that the possible unforeseen consequences of this build-up have been attracting more
jaundiced attention in Japan, and the more pressing fact that stimulus is simply not effective, one
might have been forgiven for supposing that some sweeping change to the monetary policy
framework would have come (should have come?) in 2019.

This could, possibly, have led to a more bullish environment for the Yen, some change to the ‘risk
off’ status it enjoys as a primary countercyclical currency and, perhaps, a change to its position as
pre-eminent funding unit, borrowed to invest more profitably elsewhere. It might also have re-forged
the link between the currency and Japan’s economic cycle, offering more worthwhile trading
opportunities. However, no such change was evident.

Despite the misgivings of some policy makers and others, the Bank of Japan’s plans remain
unchanged: huge stimulus until inflation gets to target.

Nicholas Cawley, Analyst

Not Letting My Profits Run to Target

Rather annoyingly this is something that I regularly talk about when doing presentations and
webinars but on more than one occasion this year I didn’t implement. It is easy when trading,
especially if it is your main source of income, to focus too hard on your daily P&L. I learnt, in
hindsight, that if I had made a loss on a trade - or if my daily/weekly P&L was in the red - that I would
cut profitable positions before they reached target, to try and balance out my losses or to make a
profit for a certain timeframe.

While taking a profit is not wrong, the reason that I cut these positions certainly was wrong as I did
not let my trade play out. When you enter a trade, you have defined prices – entry, stop-loss and
target – and if you change one of these then the others are wrong, as all three prices are inter-
related. For example, if your minimum risk/reward ratio is 1:2 and by exiting a trade early you cut

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DailyFX Research Team

this ratio down to 1:1, your overall chance of making trading a profitable, long-term, business is cut
back drastically. The reason you are in a trade is that you fully believe in it and once you are in the
position you must back your view.

In 2020 I am going to re-focus on letting my profits run to target and not scalping for short-term
profit in a longer-term trade. In short, I’m going to back myself and the reason/s I am in a trade – if
I’m not confident about being in a trade, or I am worried about my current P&L, I’ll re-set before I put
another trade on.

Daniel Dubrovsky, Analyst

The Critical Task of Learning to Lose Gracefully

The major lesson I learned this year was fine-tuning my risk-reward strategy. In the first half of 2019,
I was allowing losses to exceed acceptable parameters, reducing the effectiveness of wins. I
adopted a stricter policy with better-placed stops that defined the most I was willing to lose per
trade. Thus, in the second half of this past year, my losing trades were on average 41.5% smaller as
a percentage of equity than those during the front-end of 2019.

In order to implement this strategy, I undertook an absolute worst-case approach for exit points
using technical analysis. That is when I place stops at prices where I believe there is the most
longer-term risk of a major trend reversal. This did require more time and effort on my part when I
planned out trades, but it ultimately saved me from larger-than-expected losses. Better to learn this
now than risk eating through large winners in the new year.

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Justin McQueen, Analyst

Don’t Fight the Fed

At the backend of 2018, the Federal Reserve had signaled that monetary tightening was on
‘autopilot’, which in turn had led towards a late 2018 equity market rout. Consequently, given the
slower global growth throughout 2019 amid the ongoing US-China trade war, many analysts had
begun to sound the US recession bells. This had been particularly the case after the US treasury
curve became the most inverted since the global financial crisis. However, a prudent Federal
Reserve had quickly altered its narrative to ‘sustaining the expansion’ and as such, while investors
may have taken more defensive positions, a mid-cycle adjustment (3 rate cuts) alongside a balance
sheet expansion had prompted US equities to reach fresh highs.

Dimitri Zabelin, Junior Currency Analyst

Trust Your Fundamental Analysis and Ignore the FOMO

I invested in the Ibovespa-tracking index EWZ which very closely mimics the overall price action of
Brazil’s benchmark equity index. While I did initially lock in some profits, I ended up losing some on
that particular trade because I ignored my gut instinct: to stay away from emerging markets in 2019.

I saw EWZ rally up a storm on the back of optimism about the prospect of key structural reforms
being passed and I kept thinking “I should try to catch this wave” before it ends. As it happens, I
picked the top of the uptrend and incurred a double-digit loss. While I was (and still am) up for the
year, it taught me valuable lesson: trust your fundamental analysis and ignore the insidious pull of
FOMO.

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TOP TRADING LESSONS OF 2019

DailyFX Research Team

Peter Hanks, Junior Analyst

Remember the Basis of 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.

Rich Dvorak, Junior Analyst

Stay Cognizant of Cycles and Seasonality

Patterns in life appear everywhere – including financial markets and the macroeconomy. As such, it
often proves beneficial to have an awareness of trends that tend to occur and reoccur time and time
again. After all, history has an inclination of repeating itself.

There are many instances of this concept readily observable across the global economy and
financial instruments such as business cycles, market anomalies and price trends. Approaching
potential trade opportunities with a recognition of these overarching market trends can facilitate a
more comprehensive trading strategy.

As such, a top trading lesson to always keep in mind is a recognition of market cycles and
seasonality that is openly witnessed across the broader market. Average length of an economic
expansion, the “January effect” and several chart patterns acknowledged by technicians are just a
few examples of market cycles and seasonality that can impact price action.

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Mahmoud Alkdusi, Market Analyst

Trade…Do Not Bet

In 2019, trade war and Brexit were the most important market’s influencers. Both has and still
having a significant effect on global economy growth. This year, I have seen too many traders
placing their orders based on a tweet, a statement or just a mere hunch about these two risk events
only!

Ignoring some other important factors that need to be considered, such as:

• Central banks news and the centre of their attention like GDP and inflation data.

• Chart’s signals, in terms of market trend, momentum’s strength, possible reversal, breakout levels
etc.

To sum up, I believe that trading the market should not be built on only one or two factors. Even
though they are very important as a trade war development or a Brexit update. Any trade should be
the conclusion of doing the homework on chart and off chart.

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