By Rob Colville on December 31, 2015 in
While some may be anxious to start fresh and begin 2016 with a proverbial clean slate, I want to share with you why I’m taking a slightly different approach myself. You see, I don’t want to “start from scratch,” as they say. Sure, I have some newfound hopes and aspirations for trading in 2016, but I also want to build on recent successes, carry over confidence and positive momentum, and hopefully replicate some of the trend trades and profitable outcomes that made 2015 a memorable year, too!
That’s why, before setting out to trade in 2016, I want to reflect a little about what went right (and wrong) in 2015, recall some memorable takeaways and trading lessons, and examine the forces that produced some of the best trend trades of the past year. Because while the calendar is changing, the economic and market environment is simply carrying over, so with that, here are some of the most memorable trend trades from 2015, and what we can learn from them and carry with us for the year ahead.
Starting on December 1, 2015, with GBPCHF testing a significant multi-year high (unbroken since 2011), a bearish pin bar reversal on the daily chart turned out to be the key acceleration point in that reversal scenario. Consistent with our strategy, we entered short upon that signal, and were essentially “in the gun before it fired.” And, as you’ll see below, we were quickly rewarded for it as well!
This GBPCHF short trade yielded a rolling gain in excess of 10% in only 2 days, a quick and decisive winner that was one of our most memorable trend trades of 2015.
Key Takeaway(s) for 2016: It’s important to note that up to 80% of all reversal patterns fail, so this set-up did carry with it significant risk. The strength and long-term nature of the resistance, however, added validity, but it was the bearish pin bar reversal that acted as the invaluable confirmation signal we needed to take this trade in good faith. Remember that it’s important to wait for that signal to ensure the proper trade timing, but once all conditions are met, you should always go ahead and execute the trade. Reversal set-ups like this aren’t high-probability trading opportunities, but missing this runaway winner simply out of fear would’ve been devastating!
The completion of a 3-wave pattern just slightly below the 50-period moving average on the weekly chart of gold, and the inside bar that resulted thereafter, was the justification for our short gold position which began during the last week of October.
This was one of several trend trades we actually took on the higher-time-frame weekly chart, and with the trade moving steadily and decisively in our favor for 7 consecutive weeks, we protected gains by trailing our stop above the high of every second seller bar. It was a long-running winner that I think is memorable and noteworthy for several reasons, which we’ll discuss below.
Key Takeaway(s) for 2016: This successful short trade on the weekly chart helped affirm (or re-affirm) the value and validity of trading higher time frames. It also showed that trying to pick a bottom in hard-hit markets like gold and oil isn’t traders’ only choice; far from it, in fact. There’s still plenty of time and space to trade these markets to the downside, perhaps even throughout 2016. Also worthy of emphasis is the judicious trailing stop placement, a timeless methodology designed to protect hard-earned profits while still allowing a winning position time and space to run further.
See related: An Integral Trading Lesson: How to Let Profits Run
I said recently in a year-end interview with FXStreet that despite all we’ll remember about 2015, it’s perhaps one event that’s seemingly being forgotten from this past year that’s just as crucial. That event happened way back on January 15, 2015, when the unexpected decision by the Swiss National Bank (SNB) to drop the long-standing peg between the euro (EUR) and Swiss franc (CHF) caused an outright flash crash in the EURCHF currency pair, and others, for that matter.
Traders and even brokers worldwide were devastated and many were wiped out entirely by unlimited losses sustained that day. It’s a highly controversial event and a decision by the SNB that many believe was irresponsible. And while this event has long since faded from the headlines, it’s still an eye-opener, and something traders should keep in mind, even now, a year after the fact.
Key Takeaway(s) for 2016: This event goes to show that in this modern era of quantitative easing and other “hands-on” policies by central banks, the monetary officials, way more than any rogue trader, big bank, or HFT program, “hold the keys” and can move markets entirely without warning. This flash crash also awakened traders once again to the potentially severe consequences of trading on margin and being overleveraged. It goes to show that even technical traders must closely monitor central bank policies and changing rhetoric, and how most every trader should keep their use of leverage to an absolute minimum.
It’s strange to think that these will be our final words for 2015! However, as we bid a (hopefully) fond farewell to the year that was, and ring in 2016 with plenty of hopes and aspirations, I want to thank each of you for joining me on this journey. Here’s wishing everyone plenty of health, happiness, and good fortunes, both in and out of the markets, in 2016 and beyond!