Case Study: How to Significantly Cut Drawdowns Using Market Internals

In 2014, I spent about 6 months in a row with this unique traders tool called Market Internals, exploring its possibilities every single day, searching for new and creative implementation ideas for my own automated trading systems (ATSs). With a real obsession with this concept, I finally found almost 40 new ideas (mostly my own proprietary ideas) on how to squeeze the most out of this great tool, and slowly started implementing many of them into my own trading – with great success.

I truly believe that Market Internals can give a trader a small, unfair advantage – if thoroughly thought out and implemented well, especially in new, creative ways. Therefore, in this article, I would like to give you a very brief introduction into the Market Internals world, together with an example of one of my private Market Internals filters – to show you, how dramatic the impact of Market Internals deployment can be – in a favorable way.

Introduction: What are Market Internals (MI)

We all know how hard it is to find a new, viable trading edge. We are also aware that the scope of our possibilities is quite narrow: It doesn’t really matter what trading indicators or other tools of technical analysis we use – most of the time they all use the same source of data anyway. This data consists of Open, High, Low and Close values of the bars in our trading chart, and whatever trading indicator we use, we basically use only a slightly different interpretation of the same O-H-L-C values.

So, if we really want to go a step further and implement a broader view for our trading decisions (trading entry/exit conditions), we have to start investigating outside of the O-H-L-C values. We can, for example, implement information like Volume or Open Interest to our trading entry/exit conditions, which is not a bad idea at all, and many of my ATSs use O-H-L-C values together with Volume effectively.

However, we can still go a step further.

We can do something that many traders have no idea they can even do: We can start making our trading (entry/exit) decisions based not only on the data coming from the underlying market but also on taking into consideration the market (its overall direction, quality, strength and overall “mood”) as a whole!

Just imagine:

Wouldn’t it be fantastic to know where the stock market as a whole is heading, before we enter a position in our emini S&P strategy?

And that is exactly what Market Internals are about: The ability to read the market as a whole and effectively incorporate this much broader view into our trading decisions.

Market Internals: A quick introduction

So what exactly are Market Internals? Where do they come from?

It’s very simple: Market Internals are information about the overall stock market, provided by the stock exchanges (NYSE, AMEX), usually in the form of a standalone data feed.

And this data feed instantly provides us with real-time information about the overall stock market situation.

Using Market Internals we can immediately, in real-time, start receiving information like, for example:

  • How many stocks from the Dow Jones Index have just moved up and how many down?
  • Is the volume of all rising stocks from the Dow Jones index higher or lower than the volume of all falling ones?

Or even:

  • How do ALL stocks move in the entire NYSE? Are most of them rising or falling?
  • How many stocks have a price that hasn’t changed?
  • What is the direction of the majority of the volume? Up or down?
  • Do the 30 stocks in the Dow Jones index correspond with the rest of the market, or does the Dow Jones index now live its own life?

As you can see, there is plenty of information that can be obtained through this standalone data feed about the stock market as a whole (and later on, to be used in our strategies).

All this information can be split into several different categories, and every category has its own meaning and preferred method of implementation. However, because the space for this article is very limited, and the subject of Market Internals could give more than a dozen articles like this, I am going to focus only on one Market Internals category, one of my most favorite, the MI pair UVOL-DVOL.

Market Internals: UVOL-DVOL

This category of MI simply consists of two separate data feeds provided from the exchange:

$UVOL monitors the total volume of all rising stocks on the exchange.

$DVOL monitors the total volume of all falling stocks on the exchange.

By using these data feeds (often called MI indicators), we can monitor the volume on one side or the other, so we can get a better idea where the volume is moving to, i.e. which side is stronger. This is, of course, a very powerful view on the market that can provide us lots of important information (if we know how to use it).

From a practical means, we usually add two different data symbols into our chart (data2 and data3) to start using UVOL-DVOL pair for our trading.

Then we can start using these MI indicators as additional, or even leading filters (or as I usually call them – “Super Filters”) for our existing systems – with the goal to improve them significantly.

Let’s have a look at such a condition in practice. I am going to reveal one of my proprietary UVOL-DVOL MI conditions, which I use as a filter for many of my breakout index or stock strategies (MI can only be implemented on indexes or stocks of futures indexes).

UVOL-DVOL as a filter for significant improvement

To demonstrate the effect that Market Internals can have, I have decided to use the most simple condition that I could think of – a primitive breakout condition high=highest(h,N1). I haven’t done any optimization of the N1 parameter, nor have slippage and commission been included in the results shown below – the purpose of this article is not to present a functional breakout trading system but to demonstrate that Market Internals can be applied to even the most basic systems and get immediate, and very often dramatic, improvements. For the N1 parameter, I have used the first number that came to my mind, number 20.

Here is the basic code that I will use to demonstrate the impact of the Market Internals “Super Filter”. The test will be completed on the EMD.D market, 15 minute timeframe, from 3/22/2006 – 3/21/2016:

If high = highest(h,20) then buy this bar at close;

setstoploss(600);

setexitonclose;

Here are the results:

Net Profit: $79,440

Profit factor: 1.17

Avg. Trade: $36.52

Max Drawdown (close to close): $12,650

Net Profit / Max DD: 6.28

Number of trades: 2175

Now let’s move to the implementation of a very simple Market Internals condition that is based on the following rules:

  • Calculate the difference between UVOL and DVOL,
  • Calculate a 30 bar simple moving average of this difference,
  • If the UVOL-DVOL difference is above the moving average of the UVOL-DVOL difference AND high = highest(h,20), a Long position is opened,
  • The position is closed by the end of the day or when the 600 USD stop-loss is hit.

In a moment, I will show you the outcome of the application of this code to the original system. But first, I need to mention that I have used several small add-ons, like for example, taking into consideration the zero line of the UVOL-DVOL difference to cancel the “Super Filter” in certain situations – all of this is included in the code and the workspace that you can download at the end of this article. Yet the basic idea is exactly as I have described it – to work with the UVOL-DVOL difference and with the moving average of this difference.

Let’s take a look at the results after application of the Market Internals “Super filter”. First, the performance report:

Net Profit: $76,000

Profit factor: 1.38

Avg. Trade: $63.81

Max Drawdown (close to close): $7,790

Net Profit / Max DD: 9.76

Number of trades: 1191

And finally, the comparison table showing the results before and after the application of the Market Internals based “Super Filter”.

Metric / Before MI / After MI / Improvement

Net Profit / 79,440 / 76,000 / -4.3%

Profit Factor / 1.17 / 1.38 / +17.9%

Avg. Trade / 36.52 / 63.81 / +74.7%

Max DD (C-to-C) / 12,650 / 7,790 / -36.8%

Net Profit Max DD / 6.28 / 9.76 / +55.4%

Trades / 2175 / 1191 / -45.2%

I believe that the numbers speak for themselves – maximum drawdown has improved by almost 40% (36.8%), Average trade by +74.8%, and the Net Profit to Maximum DD ratio by +55.4%. All really great improvements, and I see similar improvements of Market Internals very often.

Conclusion

I have been using Market Internals for my own trading since 2014.

Here is what I have generally achieved by implementing them into my own trading strategies:

  • Reduce max. Drawdown
  • Improve Avg. Trade
  • Improve Net Profit / Max DD ratio
  • Smoother equity curve
  • Overall improvement of portfolio performance
  • Getting additional psychological confidence by knowing that I only trade in highly favorable market conditions.

I was really surprised that Market Internals are used by so few traders, yet, when I present them the Market Internals possibilities, they usually get quite excited and implement it to their own trading systems with instant positive impact.

This is exactly the reason why I like them and encourage all traders to investigate them further.

Digital Transformation and the Healthcare Industry

In the last few years, healthcare has joined other industries in the quest to deliver better customer experience. This has brought about a fundamental change in the healthcare industry and they have now shifted from volume to value of care of patients. The evolution in the cloud, data and mobile technologies has disrupted the health care industry.

The disruption has forced insurance companies and healthcare providers to move from a health system driven model to a customer oriented model. The behavioural needs of the modern customer has also changed and they now demand both control and choice.

Digital transformation is revolutionizing healthcare. It has helped connect and apply data, communication and technology to engage and redefine customer experiences. Most people have a misconception that digital transformation is about automation of jobs, processes and technology but it is much bigger than that.

Digital transformation requires you to rethink all your business processes. It is all about using data and digital technology by putting the needs of the customer at the centre of the business. If you want to succeed in the transformation, you need to look at the entire ecosystem of the company and determine ways to drive more value to the customer.

Optimize Clinical and Operational Effectiveness

Digital technology has helped improve quality and outcome of healthcare services. Consumers are now able to access and analyse information, so that they are able to make informed choices. Innovative solutions are offered to improve quality of care and efficiency of services. The new technology has helped reduce clinical variations.

Operational Analytics

The operations are streamlined and this helps reduce costs. Clinicians and executives are now able to share information and analyse the structured and unstructured data to make informed choices. Structured (electronic medical records) and unstructured (handwritten case notes) data can be brought together to get insights and uncover actionable intelligence.

Clinical Analytics

The quality and outcome of health services are drastically improved by creation of powerful data models. The healthcare professionals can collaborate and share insights in new ways. The accuracy, completeness and consistency of health information is improved by resolving problems that are caused by bad data.

Medical Data Storage

Innovative and new technologies in the healthcare industry is generating more data than before. Digital technology has enabled healthcare providers to store the data and utilize it in the best possible way. The data can be used to optimize patient care and anticipate the emerging health trends.

Technology has helped create a system of engagement with patients. Physicians will be able to get more information about their patients and this can revolutionize the services that are provided to customers. Health professionals can explore and navigate reports faster.

Digital transformation is an ongoing process that puts customer at the centre of healthcare business. It is important to look beyond technology to drive innovation. If the healthcare industry wants to keep pace with digital disruption, it needs to engage with those that it wants to please, its consumers. Failure to engage with the customer can result in the industry operating behind the times.

Small Company Marketing Consultants – Why You Need One And How To Select One

Having spent many years working with small and midsized B2B and B2C organizations on their marketing and marketing communications strategies and plans, I believe I’ve got a good sense of the issues facing them. Generally, at the top of the list, is the lack of a real marketing plan. How is it possible that something so basic is missing? My conclusion is that, despite possessing the skill sets that drive their organization’s success, founders and/or management simply do not have:

  • Time to think about marketing at all, because there is always something “more important or urgent” that needs their attention;
  • A real understanding of the power of marketing and how it can significantly improve profits and return on investment (ROI);
  • The resources, budgets and people available – marketing and marketing communications is “unfamiliar and scary”, and there are always other areas that need support first;
  • The knowledge of how to seek out and evaluate professional marketing help.

These are concerns regardless of the type of organization – start up, early stage or established companies, and even nonprofits for that matter. And, without real planning upfront, many brands are operating with a “Ready, Fire, Aim” reaction to the marketplace.

What Will Hiring A Marketing Or Marketing Communications Professional Do For You?

In order to accomplish short and long-term objectives you need to develop a meaningful marketing strategy and an integrated marketing communications plan and tactics. At its core, having a professional marketing program will improve a brand’s profitability and ROI. This task is often outsourced, frequently with a part-time Chief Marketing Officer.

The process starts with the outside consultant learning about the brand – its strengths and weaknesses, competition, distribution, business plan objectives, existing communication materials, employee involvement. During this learning period, the consultant also avails himself of any pertinent primary or secondary research. Most important, this period is also the time for establishing trust between the organization and the consultant.

While some tasks may be completed directly during this learning period, an outside professional would use this knowledge to prepare:

1. A marketing and marketing communications strategy, along with a positioning statement. The positioning statement is a succinct description of the core target audience to whom the brand is directed, and a compelling picture of how the marketer wants the audience to view the brand.

Sound simple? Take a minute and answer these four questions about your brand:

  • The target audience, in very specific detail?
  • The category in which the brand competes, and its relevance to customers?
  • The brand’s benefit and point of difference?
  • A reason for the customer to believe – the most compelling proof?

The positioning statement is the credo for the brand to live by. All marketing and marketing communications should flow from this positioning and be understood by all employees, agents, partners and management.

2. An integrated and holistic plan with tactical expressions – media programs; creative executions, including new and/or traditional advertising; public relations; content marketing (social media, articles, blogs, white papers, video); packaging; point of purchase; employee engagement; and, events.

The use of internal or external staff to create the above will be directed and evaluated by the consultant or, if necessary, specialists may be recommended.

3. Recommendations for primary or secondary research when clear cut answers don’t exist on specific subjects. Marketing depends on a complete understanding of the customers’ “wants and needs” as well as how they relate to your brand and competition. Not just what your staff thinks; rather, information. Facts beat opinion every time.

4. A procedure of measurement and evaluation of the objectives of the agreed upon plan, as well as the established objectives to be accomplished with each target audience and marketing communication task. Benchmarking and on-going analysis is key to successful marketing programs, allowing for change or refinement as you proceed.

5. A format for informing and discussing the reasoning behind the marketing planning, so that everyone in the organization understands why the specific strategies, plans and tactics were developed and implemented. The consultant becomes a “teacher” and the entire organization becomes brand advocates.

Marketing consultants have increasingly become members of the C-Suite because of today’s turbulent and rapidly changing environment.

What Talents Should A Marketing Consultant Have?

Look for a consultant, full or part-time, who is:

1. Willing to learn your business from the ground up and doesn’t have a “one size fits all” mentality;

2. An established professional, with extensive experience across industries and brands in B2B, B2C and nonprofit organizations, large and small. Expand your horizons and don’t settle for experience in only your niche or industry;

3. Media neutral and willing to embrace analytics to develop a variety of programs as well as to measure them. In today’s complicated marketplace, a consultant must understand new and traditional media, the difference between efficiency and effectiveness, “likes” vs. “sales”, the dangers of digital ad fraud, etc., etc.;

4. Apolitical and willing to tell it like it is, so candor will flourish in your relationship. Having your consultant free to demonstrate the discipline of marketing and marketing communications will build trust and a meaningful partnership;

5. Has an established network of marketing communications specialists who can be called in to provide solutions when necessary.

The marketing and marketing communications strategic and tactical challenges of today are growing exponentially. But, as with our uncertain economic and political environment, putting your head in the sand isn’t a viable response. As Will Rogers said, “Even if you’re on the right track, you’ll get run over if you just sit there.”

Direct Marketing Vs Affiliate Marketing

Direct marketing and affiliate marketing are two of the most lucrative sources of income for many people who take advantage of the Internet. Direct marketing involves selling your own product or service directly to your target customers.

Affiliate marketing is more like retailing, which involves selling a product or service you do not own and receiving commissions on every sale you make. Choosing which one to get involved with depends on you, but in terms of advantages, direct marketing can give you the upper hand.

Why Choose This Type of Marketing

Affiliate marketing can be a very profitable online business, and there are many instances where the affiliates earn more than the product owners or service providers.

However, that is not usually the case. While super affiliates can easily make money promoting other people’s products, probably because they have bigger email lists or advertising funds, small affiliates only make a handful.

In contrast, direct marketing makes it easier for online marketers to build their own customer base and sell more of their existing and future products.

Affiliates can actually create their own customer base as well, by generating leads through email marketing. While this is true, the product owners also generate their own email lists, often gaining the trust of most customers, especially if their products are top-notch.

Hence, when it comes to gaining repeat customers, it is the product owners make more money by bypassing the affiliates.

What’s Involved

Affiliates only need to find a product to sell, and promote it through various means online. However, direct marketers have to make their own products or offer their own services.

This is necessary, because without a product or service to provide, there can never be any sales to make.

If you want to get involved in direct marketing, you need to make the product or service accessible through a website, and should have a merchant account to deal with payments.

If you sell a physical product, make sure to hire a reliable company to handle the shipping. It also involves providing customer support.

Direct marketers have to ensure that their customers have access to technical and sales representatives. This is crucial to the success of any online business.

After the business website has been setup, you can use direct marketing strategies to attract new customers. There are many ways to do this. You can employ search engine marketing, email marketing, telemarketing, social media marketing, and the many more.

The Bottom Line

While affiliate marketing is a good way to earn money online, direct marketing can offer better chances of online success.

First> of all, you earn 100% from sales if you sell your products directly to your customers.

Second, you can create your own customer base, which allows you to generate repeat sales and pre-sell your future products.

Third, you can track and record useful customer data, which can be used to predict future sales trends and the like.

Fourth, you have the option to offer an affiliate program, which makes it easier for you to generate more sales with less effort.

Hopefully this article will help you decide what methods you want to you use (whether it be direct marketing or affiliate marketing – or both) to make money online and grow a stable and profitable business.