How Frustrating this issue has been (1.5 hours for me)! I found a solution that is different. I had the same dis-functional trace tool problems. I had been editing in file geodatabase and creating polys using the auto complete freehand tool against imagery. I was using the trace tool and road features to cut polygons where polys ended at road edges. Auto complete freehand is great in all but one respect, the number of vertices it creates. After reading all the comments in this thread and talking with a few colleagues, I tried one last thing and that was to convert "features to line", "densify", and finally return "features to poly". Now the trace tool works again. I suspect the number of vertices was the actual problem in my 'undensified' poly feature class. Hope this helps! -Tom
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