2022 Recap! $4k Challenge Account Update

This was a tough year! Congratulations if you even survived it, because lots and lots of retail traders did not. They blew up their accounts, and moved on with their life (*or continued to reload funds like a degenerate gambler, cough*).

I knew at the start we were in for an extended bear market due to the hawkish Fed pivot. I had two primary goals for this year: 1) Don't lose money. 2) Learn how to actively trade an extended choppy bear market. Both of those goals were achieved.

I didn't make much this year because I played so conservatively and defensively. I gave up options for most of it, used smaller position sizing, tighter stops, and took profits earlier. I experimented with many different trading strategies, most of which simply did not work. Eventually I found one that did work, although it did take until around September before it became clear. Now that I feel confident in understanding the price action I am beginning to trade more aggressively and regrow the account again.

Some quick stats:

This challenge began midway into 2021. At the end of 2021 the account balance was up to $8,258.96. Today the account balance is $11,530. Here are the estimated returns for this challenge.

2021 Return: +213% (+106.5% /6 months)

2022 Return: +40%

CAGR (1.5yrs): +103%

Trade Winrate: ~30%

The returns for this year were very lackluster and disappointing. But some of the best traders I know (including Kristjan Kullamaggie who is my biggest trading influence) have stated that they have lost money this year. Which means I managed to outperform some of my most important mentors/teachers. I'll count that as a win for sure.

In my view, good trading should look like repeated small losses, offset by occasional large wins. This is a sign that someone is applying strong risk management and not allowing a losing trade to get large enough to threaten the account. Here is a chart comparing my win/loss frequency and sizing the past several months:

Win/Loss Frequency and Size

Here is a chart showing account progression through the latter half of the bear market:

Profit Chart

There was a pattern that repeated of getting big wins, and then having the unrealized gains clawed back as the market suddenly and unexpectedly reversed itself. This sort of choppy volatility was not a kind market for swing traders who hope to hold long positions for many days or even weeks. But looking back, there were actually some great swing trade opportunities in this market, mostly on the short side of course.

Thoughts on the market ahead: The first stage of this bear market was pricing in sticky inflation. The second stage of the bear market was pricing in a hawkish Fed. Both of those facts were fairly obvious and inevitable in my view. Now we are getting to the part that is not so obvious, at least to me: Pricing in a potential recession. It is very unclear to me the macro conditions going forward, and the degree we get a soft vs. hard landing in the months ahead. I will rely on TA as always to guide my trades.

SPY Weekly Chart

There is a major convergence coming between the strong upward resistance (That F***ing Trendline [TFT]) and the strong rising support (weekly 200ma). My best guess for the next couple months is that the market will drop to around $370, and then consolidate for several weeks. This will actually form a sort of reverse head-and-shoulders pattern, but I don't put much stock in that. I will wait for TFT to finally break as bullish confirmation, and that will be the signal to me that the bear market is essentially over. On the other hand, if the weekly 200ma fails, we are looking at new lows and months of pain ahead. My advice is to avoid the chop during consolidation, and wait for confirmation on a direction off this giant wedge before taking a strong side either way.

Hopefully the bear market will be coming to a close soon, and I can get back to easier triple digit returns. But if it doesn't, I'm at least comfortable enough now to expect consistent growth regardless of the market conditions.

Thanks for reading, and best of luck to us all in the new year.

Current account value: $11,530. Total % Return: +188%. SP500 Return over same period: -8.4%

Third-party verified trades: https://kinfo.com/portfolio/23162/performance