Year End 2021 Review

If I thought 2020 was rough, then 2021 has been even worse. Unlike last year, I haven't had a profitable month in the first half of the year. Although I've made progress in Topstep, it's less than what I've wanted.

So where to start? On the Topstep front, passing Stage 2 was a real struggle. My previous post covered the main reason as to why this is well. It comes down to trying to "beat" the monthly Combine fee and not having a dedicated session to trade NQ.

Combine and reset fees are now a sunk cost. However, in some ways, it has optimized how I analyze the futures market. Reserving these parameters if I'm ever able to fund an account to trade the Micros:

H1/M15 time series to set a directional bias.
Plot a 3,000 volume-bar chart to identify microstructures and when levels breach. Going anything lower than 3,000 will introduce noise. Keep stepping up the increment when there are clean engulfing bar signals.

The 3,000 volume-bar parameter is based on trading NQ, not MNQ. Of course, this will need to be adjusted to the correct micros parameters when I have access to live data again.

Over on the FX side, it has been another interesting year with COVID. Looking at my Year End 2020 Review, I said I was going to focus on price drift to get a sense of exhaustion around key levels. In addition, risk management was also another point. I dare say this held true for the majority of the year. However, I did go on tilt this month and admittedly took on larger positions despite liquidity thinning out.

Starting from the beginning, I entered with 2021 with a sense of optimism. After a year of undesired volatility, this is when I decided to focus on price drift behavior. The intention here was to focus on larger structural levels and how price reacted around them.

I distinctly recall this not going well in the first seven months. Specifically, this was more so due to prices not holding levels cleanly. Recounting this from memory, we saw a lot more mean reversion tendencies, especially as every major economy tried to stimulate inflation and keep rates low.

Looking over at the replays I did in the early half of the year, I can see why they were really prone to outcome bias. The entry points that I had plotted definitely would not have generated a consistent signal. For example, I took this EURUSD screenshot showing all potential trading opportunities.

EURUSD 1-Hour

In fact, a lot of these levels wouldn't have been detectable or tradable in real time. This replay was done by looking at price in hindsight rather than in real-time. More specifically, it was done without much consideration as to how it would've played out in real time. As a result, it showed perfect entries each time.

Although pretty much every trade went against me in the first seven months, I did make a lot of progress in the latter half of the year. In fact, it changed how I plot levels and spot momentum opportunities. Rather than looking at how levels hold, I look at how levels reject, which shows price exhaustion in a different form.

Here's an example of what I mean. Specifically, this is EURUSD as it stalls out from October to early November.

EURUSD 4-Hour

After a pretty massive downtrend, price starting trading in a horizontal range throughout October. Of course, there were still plenty of minor trading opportunities zooming into the hourly timeframe. My mentality last year and even the first half of this year would be to look at how price is supported. In other words, look to bet on the upside.

My observations throughout November sort of changed how I perceive price reaction off of these levels. Rather than looking at how price is supported, I look at how these levels are rejected.

EURUSD 1-Hour

There are three major "signals" on this chart.

If you asked me a year ago how I would go about trading a price spike, I would've said I wouldn't. I would've let the price "normalize" after a volatile move. My observations throughout November and December indicate that there is a high payoff opportunity.

More specifically, plot the floor or ceiling after a price spike. In this case, I'm plotting the floor because price spiked to the upside. The reason is because one of three things will happen.

The first is price will go higher. In this case, we do nothing. It's not in our favor to be buying into a relative high as I'd be getting in as there's a high probability that others are getting out.

The second scenario occurs when price continues to range. In this case, no action will be taken on my part unless there's a range play opportunity.

The third is shown in my chart. This occurs when price fails to sustain and we see a reversal. My replays in the latter half of the year show this. In order to really capitalize when a level fails to hold, I would either need to watch it in real time or set stop entries. Since this is a directional move, slippage has to be expected.
The second signal is a Breakout Continuation. More specifically, conventional technical analysis teaches you to buy on support and sell at resistance. Unless there's a price drift showing exhaustion towards a certain level, it's rather dangerous to buy or sell arbitrarily solely for the price touch.

Instead, I like to look for this. The relatively lower level that I had plotted is structural. It was detected over on the 4-hour timeframe. The slightly higher level is the first break. Rather than trading at the very structural support or resistance level, I would watch for the first break.

Now, the Breakout Continuation structure only works or only works well when price is undergoing a very structural reversal. I would not be making the trade if price has already been trending higher and is looking to make another break higher. Why? I'm getting in after everybody else.
The third signal is a more traditional Level-Fail or level failure. It's a preemptive trade anticipating that price will breach or no longer respect a structural level. Trading the breakout lowers your payoff and is prone to a false signal. Instead, I prefer taking this trade preemptively and then scaling in when price breaks the more structural level.

Granted, this signal is prone to false positives. In fact, it requires price to first test the structural level and make a weak reaction off of it.

To a certain extent, the latter half of this year has been productive. It has improved how I spot momentum opportunities. However, identifying and taking opportunities from structural moves have remained a key challenge. I think this has more to do with some procedural steps that I haven't been doing.

I was very on top of macro analysis in the first half of the year. I was quite intuned with central bank activities and shutdown decisions related to COVID and infection rates. However, my performance caused me to abandon this as it hasn't improved my trading or decision making in any way.
I also focused quite heavily on the hourly timeframe. Multiple timeframe analysis wasn't something I performed often. A lot of times I would look at price action off of hourly levels that may contradict what is being shown on the 4-hour or daily timeframes.

With that said, this does highlight some goals I have for 2022:

Have a great focus on structural levels and moves. This is the broader idea of taking trades with higher payoff potential. This way, I can afford to sustain a lower win rate. It also means learning to filter out the noise and even just sitting out when the price action of certain pairs is far less than desirable.
Keep an eye on the economic calendar to identify volatility periods. Since I'm not a fundamentals trader, I won't be setting a directional bias with each economic release. However, there's still an opportunity consciously reduce position size, sit out of a trade altogether, and tighten my stops if I am already in a profitable trade.
Track P&L performance on a daily basis through FundSeeder. I previously talked about halting EdgeWonk because it felt very administrative. Each trade was accompanied by a lot of manual inputs into EdgeWonk. I reached the stage where I wasn't really documenting my reasoning. It felt more like a chore that I had to do.

In addition to tracking daily P&L, I aim to put in more effort into publishing trade ideas over on Tradingview. I think the public visibility of my trade ideas better serves to hold me accountable.

On a final note going into 2022, I aim to have a more concrete, rule-based approach to taking signals. I'll be making a follow-up post going into what I consider to be my key setups. The intention of keeping a rundown of my signals in a separate post so I can potentially bookmark and refer back to them at any time throughout the year.