Manage My Booking Thomas Cook “Market Quality” Concept With Market Internals

In today’s article, I would like to share with you a concept that I have presented to some of my students. It’s a pretty simple, yet powerful concept on how Market Internals can be used:Take an existing Market Internals, let’s say NYSE TICK.Use NYSE TICK to define market “quality” zones: non-trending, trending, and strongly-trending.By doing this, we have created 3 different zones of quality for this given market, which I will call “Market Quality” (MQ).For each MQ zone, we can either set up different risk exposure/numbers of contracts or even switch between different trading strategies.Let’s take a look at an example:If we use NYSE TICK (this MQ concept can be applied to all other Market Internals, anyway), then the first step is to specify the zones as non-trending, trending, and strongly-trending.According to my experience, the limit when a non-trending market changes to a trending one is at 300 to 400 for a long position, and -300 to -400 for a short position. Then, we need to set up the limit in which trending goes to strongly-trending, which is, based on my experience, somewhere at about +1,000/-1,000.


The definition of these 3 different MQ zones, when using TICK NYSE, looks like this:LONG:Non-trending: 0 to 400Trending: 400 to 1,000Strongly trending: above 1,000SHORT:Non-trending: 0 to -400Trending: -400 to -1,000Strongly trending: below -1,000Now, when we have defined the different zones for market quality (MQ), we need to ask ourselves, what do we do with this information? And there are two viable options.The first one is risk management, or changing the number of contracts.You simply test the number of contracts (1-3 or 0-2) for each zone and see how your system behaves when you use a different number of contracts, according to the MQ zone you are in. In this same way you can work, not only with the number of contracts, but also with your stop-loss. It is clear that each zone represents a different volatility and, therefore, using different stop-loss levels for each MQ zone can bring interesting results.This is one of the basic applications of the MQ concept (it can be further developed into a more sophisticated form).The second option is using MQ zones to switch the systems – something like this:Switching systems based on Market Quality zone:Non-trending: scalping systemtrending: trend-following systemstrongly trending: mean-reversion systemFor non-trending market conditions, you will simply use a scalping system that doesn’t need big moves for profits. As soon as the Market Quality changes to a trending market, you will switch to trend-following strategies (for example a breakout strategy). And, as soon as the market reaches a certain level, when the trend might be reaching its end (when NYSE TICK gets above +1000/ below -1000), you should start looking for some counter-trend entries (mean-reversion) strategies, that are waiting for a counter-trend correction after a significant market move (and you try to make some profit from this correction).


Using this approach, you will get one “universal” system that will change its settings according to the Market Quality. This is just a theoretical example – the practical application is up to you. And it is quite a load of work to get from theory to practice. So, let’s get to it!You can also work further on this concept, develop it to more forms and find other ways to use it – the example with TICK is just one of many ways in which Market Quality can be used. Or, you can use a “hybrid” of both these approaches – according to the MQ zone you can switch strategies, change your stop-loss, or maybe alter the number of contracts.What I would do is keep the number of MQ zones low. 2-3 zones are absolutely enough – in the case of more zones, there is the risk that you could not have a sufficient number of trades in each sample.Anyway, now you have a strong and interesting concept, so roll up your sleeves and get to work!Happy trading!

Fear This My Fellow Athlete

Competition is good, just as fear is good – if you will use it to your advantage rather than letting it use you. Fear can frazzle us to make mistakes, become uncertain, and anxious, but fear used to our advantage can propel us to greatness. It’s a double-edged sword. Since fear is internal, you own it, it’s yours to use as you will, if you ignore it, it might hurt you, if you use it, it can help you, give you the edge, especially in competition. How might I know this?

Well, I supposed any seasoned competitor in the human endeavor or athlete understands exactly what I am saying, but in case you need more examples to help you better understand this concept, by all means keep reading.

Recently, I read an interesting article online and watched a great video sponsored by Expert Sports Performance, the video was titled: “How Talented Athletes Deal with Fear,” by Loren Fogelman, a well-known sports psychologist.

In my view I believe that Fear is a wonderful thing, a huge driver of the human psyche, but Loren Fogelman reminds me of the truth that: “it motivates some and stops others dead in their tracks,” which is absolutely a fact.

Still, I believe that if FEAR stops someone from achieving or causes them to choke under pressure, then I would submit to you that:

1.) They don’t understand what fear is; and,
2.) They are not using FEAR as an adrenal shot for peak performance

Well, I say; too bad for them, if they are competing against me or my team. Fear can be a weakness if you let it, or high-octane when you need it, YOU decide which. “It’s all in your head” I always say. Anyway, that’s the way I see it. A great book to read is: “Feel the Fear and Do It Anyway!” published by in the 80s as a motivational type book.

As a competitive runner, I used to imagine footsteps behind me and ready to pass. Interestingly enough, I was a pretty good athlete so that didn’t happen much, but when it actually did happen it’s a sound you never forget. This imagination during competitive races propelled me to stay on pace or increase my speed opening up a large gap between me and the other runners. Sometimes when I am out training even today, I will listen to my feet hit the trail and pick up the sounds of the echo and amplify them in my brain to simulate those ever-feared footsteps, thus, propelling me to run faster and faster.