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.

How to Learn Internet Marketing

Internet marketing is an essential part of all business models. Unless you sell directly on the web, you would like to encourage customers to come to your site and see types of your skills, or join a discussion. Whether you possess your very own business and should try to learn online marketing strategies or you want to pursue a profession in marketing, there are a true number of ways you can gather the skills needed to be an Internet marketing professional. You can decide to join classes, or find out and research the fundamentals of Internet marketing free of charge.

Method 1: Starting out in Internet Marketing

1) Browse the net. In case you are older, nor have much knowledge with the Internet, the very first thing you must do is get familiar with online promotion, such as banner advertisements on the relative sides of web pages, online shopping and on-line marketplaces, such as for example Craigslist, eBay and amazon. If you don’t have the basic Computer and internet skills necessary to accomplish buying, navigating and selling the web, you should join classes then. Low-cost or free of charge classes are given by neighborhood libraries and Lifelong Learning classes often.

2) Join social mass media accounts. The easiest method to understand social mass media is to dive involved with it. Sign up for free of charge accounts on Facebook, Twitter, Pinterest, Google+.

3) Seek a level in advertising with a concentrate on online or online marketing. If you are just leaving high school and you are thinking about marketing and business, this is probably the best path for you personally then. Research marketing programs that concentrate on Internet marketing and learn the basics 1 course at a right time. After completion, you will be ready for an entry-level job at a marketing firm. You may use your knowledge to advertise your own items or ideas also.

4) Take an Online marketing class, in case you are unfamiliar with the essential steps of business advertising and online advertising. If you don’t know how to setup accounts, create a website, make use of Google work or providers with a graphic/internet developer, this may end up being the easiest method to learn. Many businesses provide this online marketing tutorial program. You can join it on the web for a cost from $50 to $1,000. If you can, hire and instructor, that way you can obtain an interactive education.

Method 2: Understanding Online Marketing Basics

1) Learn the basics of Internet analysis, if you would like to learn online marketing for free. For anybody who knows the fundamentals of social media, SEO (SEO), Google news and website building blocks, you can likely learn Online marketing by yourself then. A big component of advertising is understanding your competition, market and data analysis.

* Determine your market. This is something that should be obvious from the moment you select an ongoing service or item to market. However, you may want to research what part of that marketplace is on-line and what part is done through mobile phone or in-person sales.

* Determine who your primary online competitors are. Analysis how they work, how they market and what size of you be shared by market believe they have. Join e-newsletters, research their pr announcements and determine the weaknesses and strengths of every online competitor. You may need to buy something from them to be able to know how they complete their product sales process.

* Determine who your ideal client is. For just about any product, you need to be capable to see who’s buying the product. Once you determine your demographic, you can determine where they spend their period on the Internet.

2) Interpret the info which you have gathered. Produce reviews using Google Analytics, spreadsheets or software program that show the marketplace, customer and competition data. You can get software or on the web which will help you make reviews or charts showing where your ideal consumer is purchasing and who your primary competitors are. That is especially important if you have superiors to that you must provide results. Although you could be able to turn data into a strategy easily, graphs and reports are crucial to be able to communicate that data to individuals who control the budget. Spend time making in depth reports and building a PowerPoint presentation predicated on your research perhaps.

3) Create a strategy. Utilize the conclusions and research from your own reports to develop an effective strategy to achieve your target demographic. Begin by using the techniques which were successful for your competition, search for more innovative techniques then. Your strategy shall probably require a budget to employ writers to accomplish SEO articles, graphic designers to accomplish ads, and web site designers to revise or create an internet site. You may even need to hire visitors to update your business’s cultural media accounts daily.

4) Create internet marketing campaigns and monitor them well. Ensure that your site uses analytics or make use of Google Analytics to ensure that you understand which methods are effective and that are not. That is a forgotten guideline of online marketing often, but it may be the only method to see your return of investment (ROI).

* Internet marketing nearly includes launching many promotions at once always, which explains why they are thus important to track. A website might be marketing through e-mail blasts, You Tube videos, public media accounts, internet banners, online marketers, SEO, weblogs and more.

* Understand that see’s are the important to many online marketing. Companies are looking for methods to ensure their site and item are being listed on the first web page of a Google, Bing or yahoo search.

Effective and Easy Digital Marketing for Franchises: Simple and Powerful Marketing Ideas

A lot of small businesses and especially franchises struggle with marketing. This is especially true when the time comes to decide where and how to invest a limited budget. With the wide variety of marketing tools and techniques out there, it can be tough to be a marketer. One needs to be adept at choosing effective and easy digital marketing for franchises.

Sure, you can go out and research all the different digital marketing ideas for franchises. You can spend a few years trying to implement all the conflicting advice and eventually get results. Alternatively, you can hire a small business marketing consultant to save you years of trial & error.

Whatever option you choose, you still need to understand the commonalities behind any successful marketing strategy. Getting your basics in order will help you choose effective and easy digital marketing for franchises.

The crucial point in marketing is to take some time to research trends in your industry, and discover your customer needs and behaviors. Based on the information you gather you will be able to make a plan and develop a strategy for effective and easy digital marketing for franchises. This way, you can make the most of any budget you dedicate to promoting your business.

You have the opportunity to use numerous digital marketing campaigns for franchises, for a small amount of money. Word of mouth and referral marketing are practically free, but at the same time they are some of the most powerful marketing strategies.

It’s important to remember that whatever you do to spread the word about your business, it has to touch your customers on an emotional level. It’s the secret of effective and easy digital marketing for franchises. Some of the most successful companies in the world have achieved their best results when they’ve used experiential marketing. It’s because they managed to reach deep into people’s emotions.

Give your customers an outstanding brand experience and you’ll make them your ambassadors.

EFFECTIVE AND EASY DIGITAL MARKETING FOR FRANCHISES

1. DEVELOP AN AWESOME WEBSITE

Regardless of the type of business you run, good online presence is a must. The hectic modern lifestyle leads people to search for products and services online and make their purchasing decisions on the go. Moreover, studies show that more than 70% of internet users do their shopping through mobile devices, so you need to make sure that your website is mobile-friendly.

Another crucial point that you need to take into consideration is the optimization of your website. SEO is one of the most powerful tools for a successful online marketing strategy. Taking your place on the first search engine results page will wipe out your competition in no time. It will improve your image and bring the customers to you.

Look at your website as a place where customers can find solutions for their needs. Provide as much helpful information as you can, and do it in a language that your customers will understand. Assure them that you are there to help, not sell.

2. DEMONSTRATE PERSONALITY THROUGH SOCIAL MEDIA

Social media can be your greatest asset if you know how to use it. It gives you the opportunity to show some personality regardless of how serious your products or services are. It enables you to get to know your customers and connect with them on an emotional level. With social media, your brand can easily become your customer’s trusted friend.

Memes, comics, and infographics are some of the most powerful social media tools. They are visually appealing, aren’t time-consuming, and allow for people to get the message at a quick glance. Find a way to incorporate them into your brand tone and entertain your customers. People like and share this type of content, so it will drive up good referral traffic.

Real time marketing is another insanely powerful technique to grab your customers’ attention and go viral on social media. Choose an event that can be somehow related to your business and use it for promotion; it’s great local digital marketing for franchises. Just be careful with this and make sure that you won’t insult anyone with your witty marketing move. Otherwise, you may end up with tons of negative publicity.

3. SHOW YOUR EXPERTISE

If you want to convince people that you are a leader in your industry, you need to demonstrate your expertise. The easiest way to do this is to start a blog and share your blog posts through social media. Use catchy headlines and write on trending topics related to your industry to show that you’re in the know.

You can also use an opportunity to be a guest speaker at an event or a class, or host your own event. This will boost both your personal credibility and your company’s credibility. Just remember to direct your online and offline demonstration of expertise to your key audiences. Address their pain points and offer your expert solutions.

4. LISTEN WHAT CUSTOMERS HAVE TO SAY

You can’t develop a real connection with your customers with one-way communication. Use every opportunity to listen to what your customers have to say. Encourage reviews on your website and comments on your social media profiles. This will eliminate the anxiety of the unknown for the prospective customers, and show your current customers that you really care.

Develop a strong customer service. It’s one of the best and the most overlooked ways to ensure spreading a good word about your business. Try to provide customer service through every possible channel – live chat, Skype calls, phone calls, and emails. Ensure your customers that you are there at any time.

5. BE KIND AND GENEROUS

Start a loyalty program and use it to show your kindness. Treat your loyal customers as if they are your closest friends. Send them handwritten thank-you notes, seasonal greetings, birthday cards, and small surprise gifts. These small and kind gestures will make them your loyal and active ambassadors. You’ll have their families and friends as your customers in no time.

Show kindness to people who are not your customers, too. Give them the opportunity to experience your product or service and the chances are they will want to purchase it. You can also produce creative, branded items and use them as giveaways.

Give something back to society and your company will be associated with these good deeds. You will surely feel good while doing it and people will appreciate it. Donate some of your product or services to a non-profit organization sponsoring a charity live auction. You can also sponsor other charity events such as marathons, or sponsor a little league in your neighborhood.

DO YOU HAVE ANY OTHER IDEAS FOR EFFECTIVE AND EASY DIGITAL MARKETING FOR FRANCHISES? TELL US IN THE COMMENTS!