It’s that time of year again, when those who follow or opine on financial markets take stock of the year just gone and look forward to the year to come.
In many ways, it might seem like a pointless exercise. I mean, if a year is a long time in politics, it is an eternity in trading, and there is no way of knowing even what will be driving commodity prices twelve months from now, or in which direction.
Despite that, though, sober year-end reflection does have a purpose for traders and investors. It enables you to look back at what you got right and what you got wrong, and to draw lessons from both. My own record has been mixed, as it is for any trader who is honest with themself. I have made some good calls but have also got some things horribly wrong.
That is to be expected but looking back, there is a common thread in the calls that didn’t pan out. They have come mainly when the market was focused on something other than what I expected to drive it. Fortunately, operating with discipline and setting and sticking to stop losses for every trade limited my losses when that happened. However, I could have reduced those losses even further if I had cut as soon as I realized that my priorities weren’t being reflected by traders.
The good calls, on the other hand, typically came when I focused on the kind of fundamental factors that drive long-term moves rather than reacting to whatever headlines were dominating at any time.
