The end of the year is a good time to look back and take stock of our winners and losers.

Recounting the winners may make us feel good; but it is a critical review of the badly conceived and executed trades where we garner the most value. The following are the top trading mistakes the DailyFX analysts feel they made over the course of 2011.

Ilya Spivak, Currency Strategist: No Single Trading Strategy – Even a Good One – is really Sufficient

It is quite normal for seasoned short- to medium-term traders to have a “portfolio” of trading strategies to be used depending on market conditions. Indeed, if one’s time horizon for a given trade is several days to several weeks, it is perfectly reasonable to suspect that a variety of trading environments will require a diverse toolbox of ways to capitalize. As a longer-term trader focusing on macro-level global trends however, I’d been spared having to learn such flexibility. Using very low leverage and wide stops, I was previously able to sit through shorter-term oscillations until major trends reasserted themselves, yielding the longer-term moves I was looking for.

This year proved to be an important wake-up call as I became convinced by the spring that the Euro would succumb to debt crisis fears again and started actively selling EURUSD. The pair was both extraordinarily volatile and virtually directionless for close to four months, repeatedly pulling me into large-scale short positions only to lose momentum en route to my target and reverse sharply in the wrong direction to trip my stop-loss. It took a very uncomfortable number of such experiences to finally push me to go back to the drawing board and rethink my strategy. I widened my stops to accept a 1:1 risk/reward ratio, paying for it by sharply reducing position size, and introduced multiple layers of target levels to try and make the most of choppy markets.  Thankfully, the money I lost along the way went to pay for a bit of education: no single strategy, regardless of its parameters, is ever really good enough.

John Kicklighter, Chief Currency Strategist: Trade with My Convictions, Don’t Trade My Convictions

It may not seem that there is any difference in ‘trading your convictions’ and ‘trading with your convictions’; but I have learned this past year that there is a very important distinction. You may think the markets are insane for fighting a clear fundamental / technical trend, policy officials are pushing forward damaging and impractical agendas, or that volatility simply defies reality. These all may be true; but if the market is willing to run with it, trading against the prevailing current will lead you to losses regardless. We should absolutely have our convictions based on sound analysis (technical and/or fundamental); but I have learned you don’t move ‘all in’ on those beliefs until it is clear that the market consensus is on the same page.

A recent example of this learned experience was my attempt to short AUDNZD in November under the believe that the preceding rally from September lows contradicted the building bearish pressure that follows in the wake of the RBA’s shift to interest rate cuts. As a pair made up of two high yield currencies, the standard risk influence seemed to be neutralized and the isolation of comparative rates seemed to be straightforward. I jumped a little too early on an unconfirmed channel break; and the market promptly made me pay for it with a sharp reversal back within the advancing congestion pattern. The outlook for Australian rates may be lower; but the market proved that it is still impressed with the yield advantage the currency enjoys over its New Zealand counterpart. This may change in the future; but for now, my convictions don’t fit the trend.

In practical application, I now actively correct this mistake this by trading smaller size and for more proximate targets when trading a trend that goes against my convictions. I’ll boost the position size and push out my objectives when market and bias align. Following this approach through 20111 would have saved me a lot of pain with my expectations for risk trends to fall apart under the pressure of a global growth issues, excessive leverage in the markets and financial troubles.

Joel Kruger, Currency Strategist: Remember to Know What Kind of Trader You Are Before Taking Positions

It was summer time and the opportunity had finally presented itself and I was ready to take full advantage. USD/CHF had been dropping dramatically into July, with the market easily tracking into unchartered territory by fresh record lows. I had been warning of the potential downside acceleration for some time, but had also been excitedly waiting for an opportunity to fade the weakness in anticipation of what I believed to be the formation of a major longer-term base. With the market dropping below 0.7500, I was ready to start to build my counter-trend long position. However, what type of risk would I assign the trade and how would I manage this very rare set-up?

I entered the position into a very oversold market and kind of committed myself to a grey area where I would not be short-term with my view, but at the same time would allow myself opportunity to hang on to the position in the event that it moved a few hundred points against me. But this strategy was not a good one, as it committed me to more uncertainty than I ever could have wished for and left me with a significant stop out of some 3.5% of my equity. Even more painful, was what ensued, with the market reversing course violently as I had anticipated, but with me out of the money, on the sidelines and psychologically damaged.

The important take away from this experience is that we should all know what type of trader we are before entering a position. If we are short-term with short term expectations, then we should commit to that strategy and look to be in and out of the position within a tight time-frame. However, if we are long-term in our view, then we should assign appropriate risk, leverage accordingly and be prepared to stay the course. In the above example, I had been looking for the formation of a long-term base and was fully aware that the end of a trend can often be the most violent time. In retrospect, I should have taken an even smaller position size and dug into the trenches to allow myself the opportunity of benefiting from such a rare and unique set-up.

At the end of the day, knowing exactly who you are and what your game plan is ahead of your position will give you the necessary peace of mind to think more clearly during the trade and leave a whole lot less room for any kind of doubt. Short-term traders should find comfort in the fact that they are not looking to hit home runs, and should be in the position for the singles, while long-term traders should recognize the need for room with their positions (not assigning more risk to trade, just allowing more room) and know to stay the course and not exit when the trade shows the first sign of profit.

David Rodriguez, Quantitative Strategist: Sometimes, Popular Thinking is Correct

If you’ve read any of my work you likely know that I’m always talking about the FXCM Speculative Sentiment Index and using it in my trading. I think it’s the best single indicator we use on DailyFX.com and I’ve spent years watching it produce good trading ideas. Of course, it isn’t without its flaws by any means. The SSI shows us how retail traders are positioned, and we use it as a contrarian indicator. That is to say, if everyone’s long we often go short and vice versa. When does this not work?

Sometimes, the crowd is right. Throughout the month of October, I placed a number of profitable trades as I bought the Japanese Yen against the US Dollar, Australian Dollar, and British Pound. Why? Our SSI showed that crowds were aggressively short the JPY (long the AUDJPY, GBPJPY, USDJPY) and I wanted to be on the opposite end of the trade.

Sentiment hit major extremes when USDJPY SSI showed the number of traders long exceeded those short by nearly 20 to 1. Many traders were taking positions on the assumption that the Bank of Japan and/or Ministry of Finance would intervene and send the USDJPY sharply higher. Of course, I stayed dogged in my conviction that the crowd is always wrong. The rest was history. I was short the USDJPY and GBPJPY into the weekend. When I opened my trading station on Sunday, I saw that I’d been stopped out hundreds of pips above where I had placed my stop loss.

Trading against the crowd has generally served me well. But even at the time, colleagues were warning me of risks of a Japanese FX intervention. The crowd was right, and it hurt my account to the tune of two months’ worth of profits.

Michael Boutros, Currency Analyst: As Markets Turn Fickle, You Must Remain Nimble

2011 has been a year marked by massive swings and increased volatility in the FX markets as a host of factors pushed rates back and forth. While this type of volatility is ideal for short-term technical trade strategies, there were times this year when my performance was compromised due to a single and seemingly obvious mistake.

Having a bias on your trade is of extreme importance and you may have often heard me advocating developing your own bias and sticking to it. However this does not imply that one should simply stick to his guns and be unwavering with regards to their trades. Indeed if anything can be taken away from our trades this year it’s that when focusing on short-term trade setups and scalps, remaining flexible with your bias and nimble with your trades is the key to longevity when focusing on intra-day trades.

In today’s market place news headlines and circulating rumours can cloud your judgment as you try to filter through the endless barrage of remarks and opinions. In early October markets had turned increasingly bearish on the state of global trade as concerns over an imminent default in Europe weighed on broader market sentiment. Fuelling the rally were hopes of a comprehensive aid package ahead of an EU summit that would shore up banks and avert a default in the periphery nations. Although the actions taken were not a solution to the longer-term solvency issue facing the region, markets rallied on the hopes of salvation for the euro-project. I continued to short the euro and the Aussie for some time despite the rally in risk under the pretence that these measures would do little to address the underlying problems of lack of competitiveness and deficit spending. Obviously, the results were dozens of drawdowns on scalps as I held my bias in what I considered to be routed in the fundamentals.

Reflecting back, it’s important to remember that it’s not our job to decide policy or put forth economic projections, but rather to trade them. Putting it simply, even though the EU had done little to address the long-term sustainability of the region, markets reacted favourably. When concentrating on playing technical intra-day swings it’s our job to judge and ride these shifts in sentiment, even if the underlying metrics may suggest otherwise. That said, it’s still of the utmost importance to develop an underlying bias on the pair to guide your scalps and medium-term trades. However when markets are clearly showing conviction on a move, Don’t Fight It. Although the fundamentals will always catch up in the end, in the interim, it’s important to respond and trade what the markets is telling you- Not the other way around.

Jamie Saettele, Senior Technical Strategist: Countering Human Bias

I rely on technical information (based on price and time) in an effort to view markets through an objective lens.  Early month ranges (high/low tendencies at beginning of the month) and key reversals are two cornerstones of my strategy and I ignored them at critical points in time.  My mistakes were ignoring the key reversals on 9th August and 4th October.  The latter reversal also occurred on the second day of the month, making the signal stronger.  I was bearish and unwilling to change since I was convinced of a 2008 type collapse.

Interestingly enough, I turned bullish in my commentary.  I wrote on August 9th (day after the low) that “having found support from a line that extends off of the December 2010 and March 2011 lows, the AUDUSD could see a sharp snapback rally” and on October 5th (day after the low) that “short term structure is constructive, with the rally from the low unfolding in 5 waves. I favour buying dips.”  Even so, I didn’t go long!  These experiences highlight obstacles, specifically inherent bias, that humans face in speculation.  Conservatism bias, in which one gives too little weight to new information and confirmation bias, which leads us to accept information that confirms our bias, explains my failure to go long in August and October.  It is impossible to completely eliminate bias from the human mind but one can limit bias and its influence on the bottom line by strict adherence to a technical, rules based approach.