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Over the past months I have investigated different tools that serve to model market structure and contain elements for potential trade signals. I began looking at VWAP (ETH session) configured with several SD bands that @JohnnyBoy presented in his thread
Hello,
in the stock world, vwap is an indicator widely used in particular with big professional money managers that use it to asses the performance of traders.
Is this indicator relevant in the stock index futures world? Is it used and watched by …
The VWAP and SD bands create a decent market structure, but seemed to be missing some of the key elements I was looking for: static zones of support/resistance and areas of relatively high/low volume. The SD levels and VWAP do serve as potential lines of support/resistance, but are constantly moving with price. I knew about order flow volume profile, but did not understand the various levels/zones it printed.
The below video does an excellent job explaining what volume/market profile is and how to trade/interpret the components
Trade/Entry Plan Daily Profit Goal: $1000 (I user a profit target indicator that includes commissions in the target) Maximum Daily Loss: $2900 (this is $100 less than the maximum permitted daily loss in the TopStep Combine.
My Biggest Problem/Fault Trading:
I have had severe issues sticking to a trading plan, hence the reason I'm posting this. I have a consistent tendency to overleverage and overtrade when I have lost a trade. I may plan on trading a 1 lot, and suddenly diverge and begin trading 3 or 5 lots. This failure to stick with a risk plan has led to blowing up several combines in the past. I will also divert from my standard trading plan, "perceiving" a change in price action that warrants a trade outside the scope of entries. The trading/risk plan does not account for this behavior, and the results are predictable.
Entry/Exit Plan
I tried using the Gomicator GomMpPro instead of Ninjatrader's native Order Flow Volume Profile indicator, however I've moved back to the native indicator. The required tick replay made it messy/unusable in replay and it calculated different start times for the 'n' bar ago values. The YouTube video I posted does a good job priming you how to interpret the volume profile plots and their significance. These plots serve as the basis for my entries. I'm looking for confluence with the ETH VWAP setups that @JohnnyBoy identified. I'm not going to go over all the entries, and they can be found in his thread. I'm also using Eveday's drawcator suite to plot VWAPs, but the native order flow VWAP will work as well
Order Flow Volume Profile values *if I don't specify, it's the default value*:
• Calculate: On bar close
• Profile Type: Volume
• Profile period: Bars
• Bars: 60
• Resolution: Tick
• Value area (%): 68
• Profile opacity: 10
• Show POC: checked
• Show Value area: checked
• Value area opacity: 80
• Color for profile: Gainsboro
OFVP Observations
My trading philosophy revolves around how price is moving relative to the last 60 bar period's value area high and low My observations are at a novice level, but so far I've seen the following scenarios:
• Price breaks through a period's VAL/VAH, with the subsequent period's price opening below/above the PVAL/PVAH. Price continues downward/upward into an area of previous ETH session volume outside the PVA or seeking new ETH session lows/highs.
• Price breaks through a period's VAL/VAH, with the subsequent period's price opening below/above the PVAL/PVAH. Price action continues briefly in the direction of the break direction, however returns back into the PVA. Price oscillates within the PVA, likely breaking through the PVAL/PVAH once or several times (especially for relatively smaller PVA tick boxes).
• A session's price action closes within the session value area, the subsequent session's price action explores the bounds of the PVA, with price breaking through PVAL/PVAH, but returning back into the PVA.
• A session's price action closes within the session value area, the subsequent session's price action explores the bounds of the PVA, with price breaking through PVAL/PVAH and exploring previous ETH session volume areas or establishing new ETH session highs/lows.
I'm not going to list specific entries, as there's some variability in the analysis between the OFVP and ETH session VWAP/SD levels. Targets include SD levels, current session VAH/VAL and PVAH/PVAL.
Disregard the attachment/image in my original post. This is an ideal screenshot/markup of what I'll be posting in this journal.
This is from 12/30/2020's NQ 3-21
I usually begin looking for trades around 8:00 AM EST, as this is convenient for me time zone-wise and affords the ETH session VWAP to have established somewhat. You'll notice that the OFVP carries from the previous ETH session. The 987 tick data series will often fail to establish VWAP/SD levels that are discernable, but in this case there's enough to trade from.
Price opens within the PVA and immediately begins a move to test/break the PVAH. If you look closely, I did trade this however they were more exploratory trades in sim to test this method. The initial break of the PVAH was coupled with price moving through +SD 0.75 past +SD 1.25. That was a decent move, and I scalped it for ~20 ticks. I anticipated price stalling or reversing around +SD 1.75. From there price retraces back through the PVAH into the PVA, and testing +SD 0.75. I took another trade when price bounced off +SD 0.75 and broke through the PVAH again. This time price once again broke through +SD 1.25 and tested +SD 1.75. My entry here was later, but so was my exit; closing the trade closer to +SD 1.75.
That was TWO tests and failures of price to break through +SD 1.75. If you've followed @JohnnyBoy's thread on how price behaves around these SD levels, that should be a strong indication that there are few offers up there and that bids are likely to take price back or through the session VWAP. This is precisely what happened, with price smashing back down through PVAH into the PVA; and through +SD 0.75 all the way down through the VWAP to test -SD 1. While I didn't trade it (I normally abstain from the market open), this move was good for ~160 ticks.
The overnight session saw another beautiful setup with price breaking the PVAH and kissing +SD 1. There was a retracement back briefly into PVA and slightly past the ETH VWAP, however price rocketed back through PVAL, past +SD 1 and tested +SD 3. I saw this setup prior to going to bed, however don't feel comfortable leaving a position on without being able to actively manage it. I'm in the final stages of applying appropriate R-values to these trades to frame risk.
We're currently sitting high above the PVA (~190 ticks), so will likely need to wait until the next 60-bar period before a trade materializes.
With TopStep's $150k combine, your maximum daily loss is $3000, which is 2% of the account. I haven't traded/journaled this trading style long enough to establish any type of expectancy, so I'd prefer to be more conservative than not. I think an appropriate level of risk per trade is $600, or R = $600. I strongly believe that managed properly, many of the trades that fail to work out can be closed well prior to the $600 mark; and some at break even. This is trading a 2 lot of NQ @ $10/tick. This is bit under 60 ticks with commissions factored in.
After reviewing the TopStep $150k parameters/rules and this trading system/framework, i've devised the below R-values:
It's important to note that despite the combine's $150k "buying power" (their language), the max daily loss is only $3k or 2% of the provided margin/capital. My R-values are based off the $3,000, which is the true amount that technically is at risk for this combine. From a risk perspective, it would be folly to calculate R-values attached to the full $150k of "buying power". The same 3.5% risk per trade (1R or $105 ) I'm employing based off the $3k would be $5,250 off the $150k. This is $2,250 beyond the max allowed daily loss.
I have begun to question the efficacy and integrity of these combines, given their maintenance costs and available risk extended to the user. The $150k combine is ~$309/month (which includes 2 resets per month if you locked in their special pricing/deal). The true amount at risk is the same as trading $3,000 of your own capital (or less if you factor in margin requirements as you drawdown towards -$3,000).
In the second phase of the combine, and thereafter if funded, you are able to expand your lot sizes from 3 all the way to 15 as you become profitable. To trade the same risk that I'm trading with 1 lot with the available 15, you would need fifteen times the amount of "available risk margin" or $45,000; which is 30% of the $150k's buying power. This is a CRUCIAL part of potentially being successful for anyone trading the TopStep or similar combines. The "big number" that represents buying power is absolutely redundant. The only number that matters is the "small" number that represents the actual amount that may be risked and lost. As soon as you hit -$3,000 in these combines that $150,000 of buying power becomes $0 of buying power.
I would imagine that a very generous percentage of those trading these combines are completely oblivious to the almost 100% risk of ruin provided they extend their lot size beyond 1 when starting out, irrespective of their trading strategy. I have a complete excel sheet of risk from 1-5% of the provided $3,000 of risk and chose 3.5% with 1 lot as it appears to be the most optimal for my win/loss ratio so far. I have considered bumping up to 2 lots, but will likely only do so when I've hit $3000 of profit which extends my risk from $3,000 to $6,0000. That being said, the maximum allowed trailing drawdown is $4,500 (calculated at end of day).
I would appreciate anyone and everyone's insight into the above. This doesn't so much concern my trading strategy as it does the nature of these combines. I'm going to review my trades at the end of next week to determine whether I might reduce my 3.5% risk per trade to 2.5%.
I forgot to include in my previous post that the R-value of 3.5% is adjusted to the amount of available risk. In the event of a $1000 drawdown for instance, that same 1R of $105/21 ticks becomes a 1R of $70/14 ticks. The risk resets daily (it's a $3000 max DAILY loss) all the way down to what is the initial minimum account balance of $145,500.
This is where the $150k buying power comes into play, as it is the basis to which your profits and losses are calculated against for the value of your maximum drawdown. It will never go below the $145.5k because at that time you will have failed the combine. Once it has increased however (in the event of a profitable day) it can never decrease. Even if you have a losing day and do not break any rules (resulting in a lower account balance than the day previous) the maximum drawdown will still reflect the padded account balance. This is up until the maximum drawdown hits the initial balance of $150k. At that point the maximum drawndown stays at $150 and doesn't increase as profits are accrued. However the maximum daily loss does NOT increase which is counterintuitive from a risk perspective.
If you were to hit the profit objective for stage 1 or 2 ($9000), you would never have at anytime in that run-up more than $3000 of available risk. You might think that if you were to have $9000, you could drawdown all the back to just above the initial balance of $150k but you would be mistaken. This is an extremely risk adverse approach from TopStep, and doesn't empower the trader with any sense of accomplishment or encouragement when they are profitable. The reasoning is to lock in and protect profits in the funded account, but that means a trader can never go above 1-2 lots without exposing themselves to tremendous risk of ruin.
After a profit of $9000, with an updated cash balance of $159,000 (this includes commissions), it would make sense to be able to scale the risk up using profits to pad the available risk. The $3,000 of available risk should become $9,000. Using my model of 3.5%, 1R should adjust to $315/63 ticks trading 1 contract. What would make more sense would be to scale the contracts traded up from 1 contract to 3 contracts to achieve the same 21 ticks. This is invalid as you would be trading using 10.5% risk, not 3.5% in real TopStep rules/parameters.
I would think that TopStep might accommodate/negotiate available daily risk with their profitable traders that achieve funded combines however, as there would not be a ton of incentive to remain trading through their prop firm otherwise. Once you achieved $9000 or more of redeemable profit (the first $5000 of profit goes to the trader 100%, the rest in an 80/20 split), it would behoove you to cash out and trade independently so that you could better scale risk. This doesn't even begin to go into the tax incentives of trading outside TopStep through an owned LLC/etc under section 1256 and the ability to claim deductions. All withdrawals from TopStep are considered standard income and taxed accordingly.
I'm not discouraging anyone from starting a combine with TopStep, however it's hard to see how they would maintain anyone serious in the long term given the structure. In my opinion it is a great place to establish a foundation of capital to trade independently in the market; but not necessarily as a long term commitment. Would I'd love to know if exactly how many active funded accounts TopStep has versus their customer base. They disclose the amount of NEW traders in 2020 and that year's withdrawals. There is a recent article claiming over 6,000 trading accounts funded (total, not just from 2020) and $2m in total withdrawals from that year. If you crunch the numbers, that's an average of $333 per funded account (assuming the active number in 2020 was around that). Their spotlights on profitable traders reveal individuals who have withdrawn several magnitudes larger, but the average isn't compelling.
TopStep is not obligated to share this information, but they do frame some of it in a way to inspire would-be combine purchasers. Is it unethical? I would say no, but the majority of retail traders are highly susceptible to risk of ruin regardless of which path they take; whether it is trading their own capital or trading through a funded or simulated combine balance. Futures, options, etc. is a siren call for legions of aspiring millionaires, even more so than real estate in today's age. Profitable day traders make up a small proportion of all traders - 1.6% in the average year (Barber, Lee, Odean (2010): Do Day Traders Rationally Learn About Their Ability?). This isn't an attack against TopStep, but more so on trading as a whole.
I keep forgetting things in these posts, and would rather post new replies than go back and edit past entries.
The available DAILY risk can change provided that you reach an appreciable amount of intraday (6 PM EST to 4:10 PM EST the subsequent day) profit. While you start the day with $3000 of available max risk, intraday profits extend the available risk.
If you were to make $1,500 in intraday profits you would have $4,500 in available risk which could increase your R value. My example would take you from $105/21 ticks @ 1 contract using 3.5% to $157/31 ticks. You would not yet be profitable enough to increase your contracts traded from 1 to 2 however to maintain at least a 21 tick value however. You would need to profit $3,000 to bring your available risk up to $6,000 in order to enjoy trading 2 contracts for $210/21 ticks using 3.5% risk.
To continue to remain risk adverse, it would be best to remain at or under 3.5% until the $3,000 of intraday profit is reached. So instead of continuing on with 3.5% ($157/31) in the event of $1,500 of intraday profit for an available risk of $4,500, you might continue with the original $risk/ticks of $105/21 ticks but have that become 2.33%. $3000 in intraday profits using only 1 contract is difficult (600 ticks of net profit).
Once you consider a realistic daily profit target (I originally started with $1,000 but have since lowered that to $500), one need not concern themselves with scaling from 1-2 contracts intraday. The $500 is ~4.76R, which is likely still high. A daily goal of 1-2R would be ideal, however that doesn't fit well into the framework of this combine where a profit target of $9,000 is required for EACH combine step to progress. My fear is that the necessary time/trades @ 1R/3.5% to get to $1k will very quickly result in overtrading/burn-out/tilt/etc. You take what the market gives you, but $1k is a bit less than 10R. At the moment it seems to be a lofty goal.
I agree with you on the fact that too little focus in placed on the risk of ruin. That is actually all the TST is really about. If you can make money with their parameters that are set to leave them with basically zero risk, then they will give you money.
However for my experience in any case you are far better off by taking a combine and save your own money that to start trading your own money from day one. If you want to see some "real numbers" look at the analysis of my combines in my journal (
****COMPLETE ANALYSIS OF MY COMBINES ****
****FROM JUNE 2019 to 30th DECEMBER 2020***
******PART 1 ******
Hello readers,
as I promised in previous posts I want to share with you the analysis of all my combines from June 2019 to December 2020. …
,
you will see that if I add up all the virtual money that I lost in the combines in one and half year it adds up to more than 90.000 USD. This is a lot more than the cost of being enrolled in a combine in the same amount of time.
Also the reality is that trading is a "fully scalable business", this implies that it doesn't matter if you have 3.000 USD or 3 millions, because you can risk as much as you want in both cases, so the risk of ruin is basically the same.
If you make some simulation with a program that simulates random betting, you will see that the first part of the equity curve is the "volatile one", basically if you increase your risk linearly until your equity starts to "get going" you are basically going up and down and not gaining much, them suddenly the equity starts to skyrocket. Basically, during the initial phase of their equity curve, most traders will lose their combine and TST will make money out of fee. Then there will be a few traders who reach a 50K or 100K gain and then TST will make money out of a 20% cut on their gains.
This makes sense since so many retail traders, TST traders included, completely fail to manage risk in their accounts. The equity curve is ideally built from several hundreds if not thousands of trades. TST gives you the ability to unfortunately go to $0 after just one trade if you over leverage in Step 1 (it can easily happen in Step 2 as well, but not initially without immediately failing the combine). The "skyrocketing" effect you might see is the law of averages applied to the positive expectancy of a system. The higher the positive expectancy, the steeper the curve.
The trick with any system is to find the optimal amount of risk for each trade based off both the accepted risk and the expectancy of the system. 3.5% is higher than ideal (0.5-1%), however I don't see a realistic path towards completing the combine with such small margins (plus my current system demands 15-21 ticks of breathing room.) I hope after a large quantity of trades to get a better handle on the average MAE and MFE to ideally lower risk slightly to 2.5-3%.
