Hi everyone. I've experienced the same problem, and the polygon feature that I'm editing is a shapefile. The workaround that I've used: 1. Open a blank ArcMap session. 2. Add the polygon shapefile that you want to use for tracing. 3. Start editing. From the "Feature Construction" toolbar, click the "Straight Segment" tool to start with the first point. 4. Then click the "Trace" tool and click for the second point. (Switching the "Edge Snapping" on in the Snapping Toolbar will help you to see the cursor jump to the edge of the polygon that you are tracing). This should work 'coz it resolved my problem. By the way, don't mixed up your Table of Contents with File Geodatabase, or SDE features. The "Trace" tool won't work. All the features should be in shapefile if you want to use the other features as a reference. You can convert the completed shapefile into File Geodatabase or in SDE afterwards.
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