2021 Year in Review

2021 was an interesting trading year for me. It was a year I started off with a bang and ended with a whimper.

It was my best year ever in terms of absolute $ profits. However it wasn’t my best year in terms of percentage returns on my capital. Also, pretty much all the money I made in 2021 was made in the first three months of the year. I spent the rest of the year mostly flat. Now, this isn’t out of the ordinary for trading. I read a stat somewhere that profitable traders typically make most of their money on only 20% of trading days per year. This stat, in fact, highly influenced my risk management the past three years, and encouraged me not to worry if I had relatively long periods of time when I was flat. The profitable days will come, so manage your risk and make sure you keep the profits you make by regularly paying yourself. I’ve continued that practice, paying myself a salary from my trading profits every 2 weeks, and putting those profits away in lower risk long term investments. I also withdraw more if I’m struggling or in a drawdown to protect my capital. I did this in 2020 when I was in the middle of a 50% drawdown, withdrawing a huge chunk of my capital and shrinking my overall account size. I did it again this year when I experienced a similar drawdown. In fact, this year I paid myself about 70% of the profits I generated. Being a good trader isn’t just about making money…it’s about keeping the money you make. You can’t call yourself a good trader if you can’t keep the profits you make.

Being a good trader isn’t just about making money … it’s about keeping the money you make.

Here’s a graph of my cumulative percent return for 2021. You can see how I made all of my money from January through March, then had ups and downs for the rest of the year to finish mostly flat.

Overall, I finished with a 431% return on my capital. Here’s a summary of stats for 2021:

Cumulative % Return431%
Average Daily Return0.77%
Largest Drawdown (Peak to Valley)-50.7%
Largest 1-Day Drawdown-21.9%
Largest 1-Day Increase16%
% of total trading days that were green51%
% of total trading days where account hit all time highs18%
Total Number of Trades758
Winning Trade %52.1%
Ratio of Gains to Losses1.33
Win/Loss Ratio (Average Winning Trade/Average Losing Trade)1.23
Max Consecutive Winners11
Max Consecutive Losers7

So why would the year start off so well but then end in a whimper? There’s a few reasons. First, two of my best strategies are shorting gappers and multiday parabolic runners, and there were TONS of these opportunities in January and February. Thus, my profitability was influenced by the sheer number of opportunities available. Second, in the summer I had such a big cushion for the year that I decided to experiment with new trading concepts and strategies. For example, I started experimenting with selling call options (call credit spreads) after reading many Twitter posts by @team3dstocks. Initially I had a lot of success with them, but then it started to fall apart. It eventually lead to my biggest drawdown of the year in August when I got auto-exercised on the sold call option portion of the spreads on TSLA and AMC when I misunderstood the process of what happens when part of your credit spread expires in the money (up until that point all of my spreads had always expired out of the money). I ended up with massive short positions in both, and they both gapped up the following Monday. I took huge losses on both in combination with a $3 million margin call (no, I didn’t lose $3 million…that was just the amount of money needed to cover the margin of the trade). Fortunately I was able to take a liquidation strike and not have my account restricted from trading on margin.

I also experimented with some changes to my existing strategies, as well as other newer concepts like the VWAP Boulevard concept that @team3dstocks had mentioned. I took a lot of lumps while working on these.

By November, I had tossed out most of the newer strategies that I had tried, keeping the few that seemed to have an edge. This is typical for trading. You’ll test out numerous strategies and spend tons of time on them, but eventually you’ll only find a few that really work for you. For example, after testing 10 trading concepts, you might only find 2 that really work. Because of this, trading is one of those activities where you can do a huge amount of work often with little to show for it, because you’re spending so much time evaluating strategies that eventually don’t pan out. The funny thing is that out of the various strategies I tested, the few that I’ve kept were just variations of my existing strategies anyway.

…trading is one of those activities where you can do a huge amount of work often with little to show for it, because you’re spending so much time evaluating strategies that eventually don’t pan out.

Even though in November I was done trying to experiment with new strategies, I still struggled to get any upside momentum going in my accounts because there were still weaknesses that were cropping up in the newer concepts that did have an edge. For example, for one newer strategy, I had some losing streaks that revealed a problem with the strategy. Those losing streaks would result in adjustments to the strategy which will enhance profitability over the long term, but in the short term my performance is adversely affected. Whenever you have a new trading strategy that looks good, be rest assured that the market WILL expose its weaknesses at some point. Every time I’ve thought I had a newer strategy “dialed in”, the market would come around and tell me that it wasn’t. Often, the tweaks that were needed were fairly minor too…sometimes just a minor tweak would stop a losing streak of 3-4 trades in a row without missing out on most of the profitable trades (like even just a time of day adjustment). But the only way to discover these weaknesses is through data collection and getting as large of a sample of trades as possible.

Whenever you have a new trading strategy that looks good, be rest assured that the market WILL expose its weaknesses at some point.

Here’s a year-over-year comparison of my performance.

Cumulative % Return294.2%1233.3%431%
Average Daily Return0.59%1.17%0.77%
Largest Drawdown (Peak to Valley)-22.5%-51.5%-50.7%
Largest 1-Day Drawdown-15%-16.3%-21.9%
Largest 1-Day Increase+15.5%+18.9%+16%
% of total trading days that were green54.7%50.2%51%
% of total trading days where account hit all-time highs26.7%22.9%18%
Total # of Trades6431098758
Winning Trade %61.9%52.7%52.1%
Ratio of Gains to Losses1.401.461.33
Win/Loss Ratio (Average Winning Trade / Average Losing Trade)0.861.311.23
Max Consecutive Winners171211
Max Consecutive Losers12217

You can see similarities in some stats among the years. For example, one similarity between 2020 and 2021 was a big 50% drawdown in the late summer. In both instances, they were caused by me experimenting with new strategies. In 2020, it was me repeatedly trying to do a long term short on $GSX. You can also see that 2020 was my best year in terms of % returns, but of course I made more absolute $ in 2021 simply due to having grown my accounts much larger.

My Trading Goals for 2022

Given these stats over the past few years, and the causes of my ups and downs, here’s my goals for 2022:

  • Focus on my existing strategies and avoid trying any new strategies. It was trying new stuff that was responsible for big drawdowns in both 2020 and 2021. I can make a lot of money with my existing strategies…there’s no need to add more. Just stick with my existing strategies and refine them if needed.
  • If I do have a new strategy in mind, don’t rush into trying it with real money after backtesting it. Paper trade it for a VERY long time. There’s no need to rush into trying a new strategy even if I think I’ve thoroughly backtested it. I can iron out the kinks with paper trading while making money with my proven existing strategies before I put any real money on the line with a new strategy.
  • Improve the efficiency of my trading. Focus on the best setups and improve my winning trade percentage. Make more with less. I’d like to be in the 70%+ winning percentage range, and focus more on setups that can give me a minimum of 2R per trade.
  • Eliminate the big drawdowns. Avoiding new strategies that aren’t thoroughly tested will help a lot with that.

Good luck with your trading in 2022.

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2 years ago

Appreciate the articles you’re writing and congratulations to some stellar trading results these last 3 years!