#087: HOW MY MARKET INTERNALS SECRETS HELPED MAX SCHULZ TO WIN 3RD PLACE IN THE WORLD CUP TRADING CH
In 2017 many traders achieved great improvements in their strategies with the implementation of my Market Internals secrets. One of them was Max Schulz, who won an amazing 3rd place during the 2017 World Cup Trading Championship (congratulations, Max, you ROCK!).
An interview with Max has recently been published at BetterSystemTrader.com and with the permission of Andrew Swanscott, I am publishing this interview on SystemsOnTheRoad.com today.
Thank you, Max! Thank you, Andrew!
Andrew: Hi Max, well done in the World Cup Trading Competition so far, you’re doing very well.
Max: Yes, last year was very successful. The competition was very close between us, number three and number four. For a few days, he was 85% performance but I saw him reach 102%, very close to me because I ended at 111.7%, but it's a competition. It's okay.
Andrew: That's very exciting. Is this your first time in the competition?
Max: Yes. It was my first time in the competition, also my first year in stock index trading, because before I was trading grains, and I wanted to trade index futures, and I was looking for a special man who can trade indexes, and I found you, and through your website I found Tomas. I became a follower of Tomas and you. After that, I bought your Market Internals course to improve my index trading, because in the beginning, I had not so many trades per month, maybe two trades in the month, not so much. After I bought the course and worked on an index trading strategy I took part in the competition last year and it was very successful, because my performance ended up at 111,7%. It's very good for me.
Andrew: You used knowledge from the Market Internals course to improve your index trading for the competition?
Max: Yes. I had a strategy on the S&P 500 but this strategy was very poor. The performance was very poor. I had maybe about two or three trades per month and my drawdown was a little bit big, and after I used Market Internals, I improved the performance a lot. With this strategy I trade the competition last year, and you can see it was very successful that year. I believe I will stay with a very high probability, I will stay in top five. Top three I don't know, but the probability is very high I will stay in the top 5.
Andrew: That's a really good result. A lot of the results we see from Market Internals does help to improve the performance of the strategies, so it's good to see you found that as well.
Max: Yeah. I'm very impressed with Market Internals. It improved for me because I use tick on S&P 500 and I use divergence between tick from S&P 500 to tell me when it’s the end of the pullback on the S&P 500.
S&P 500 is a pullback market. It has a strong uptrend, and when they come down it is a problem to identify when the pullback is ending and about to go up again, but this divergence shows me the pullback is ending and it's time to go up again and that's my entry point now. This is my entry point and this is what made my drawdown very small, but the performance looks so good, in the beginning I did not believe it was true.
But to understand my idea, for me I found that divergence between tick, especially for S&P 500, is a good indicator to show when the pullback on S&P 500 will end.
This improved my performance very, very well, and the drawdown was very small and I had also more trades during the months. This year I had two versions of this strategy and also I trade only the end of the day. I sometimes have a problem because the tick value sometimes changes end of the day. It's not such a big problem, because I have a lot of trades and so I can do a lot of trades and get good performance.
Andrew: You mentioned that you used to trade Wheat, what's your actual trading background?
Max: I was beginning with grains. Swing trading, I work with COT Data. It's a course from Larry Williams. I bought the course from Larry Williams and my beginning was trading grains with COT data. I was very successful with this idea. After that, I needed index trading because the COT reports don't work very well on stock indexes, S&P 500, or NASDAQ 100.
My friend trades indexes and has very good performance, and I saw index trading can bring very good performance, but I didn't have an idea how to do it. I had some ideas from Larry Williams, pattern trading, price pattern trading, and to exit first positive open, you know this idea?
Andrew: Yes. I know that one.
Max: Yes, from Larry Williams. Exit first positive open, trade end of the day, and trade on price pattern. It was my beginning to find some strategy that works on the S&P 500, and so I found some strategies, but their drawdown was a little bit too big, and there was not so many trades in a month and very poor performance.
I tried it with Market Internals and found there are some patterns... For example, I was looking for divergence but I told you before, divergence between tick, especially for S&P 500, and when there was a divergence. Then I used price patterns to go into the market, to take a trade, or to not take a trade. If I have this price pattern I make a trade, if I have these price patterns I do not make a trade.
This improved my performance very well, and especially end of the day was good for the competition because I have no connection between my TradeStation software and my broker in the competition. I can't send the order automatically from the TradeStation to the broker for the competition, so I have to do it by hand, or manually.
End of the day trading was very good because I looked at end of the day on my TradeStation tick chart, and I saw, ‘okay, there is an entry here, okay,’ and so I sent my order to open on the next day open. This was okay for my trading, for my timing also, because it was 11pm European time and their market was closed, and so I saw at 11pm there is an entry or there is no entry. When there is an entry I send my order to open next day, go in next day by open of the market. This works very well for me, and for the competition also and the strategy was very robust.
In the beginning I was very worried about the good performance. The performance was very, very good and I was thinking, ‘it cannot be true, maybe I have a mistake’. I was not confident in the strategy, and then at the beginning I thought, ‘maybe it's a mistake in my work and maybe it won’t work very well’, but the performance out-of-sample was the same performance as in-sample and I got more confidence and took more trades in the strategy.
At the end of the year, the performance had made more than 110%, but because in the beginning I was not so confident I didn't take all the trades. I did only long parts, yes. If I did take all the trades the performance is maybe about 150-160%, but it's because I have not so much experience in index trading.
At the beginning of the competition, I also did swing trading with grains, but it was not so successful because the start capital amount is only $10,000 and with $10,000 start capital you can't use a lot of strategies on different markets, because the start capital is very small.
I changed my strategy and was only trading one strategy on S&P 500 and index trading. Also, I did something on 10 years t-notes, because the t-notes are very small risks as well as more stop-loss. This was also good for a small account. This was a long-only strategy and when you see it on the chart you see that bonds are in a little bit of a down trend and that's why this strategy works a little bit poorly. After three or four months I took it off and traded only the S&P 500 strategy since then. So, this is the story.
Andrew: That's a good story. You said earlier that the S&P strategy had a big drawdown before Market Internals, what type of difference did you see after you applied Market Internals?
Max: There were two problems. When I trade only with the price patterns without Market Internals, I have two problems because I trade end of the day, I want to have a small drawdown, it is impossible to reach without taking less trades.
When I want to have a small drawdown and trade with only price patterns then I have to do less trades because I can take only two or three price patterns, but this is poor, maybe one or two times in a month. When I want to have more trades and I trade more price patterns, then I have a big drawdown.
This was the problem, less trades means less drawdown, more trades means more drawdown and also more performance, but only 50% more return with 100% more drawdown, and so it was not good. Then, after I used Market Internals, it was possible to trade more price patterns, with small drawdowns. This was my big victory.
Andrew: That's really good. Do you remember how much difference in drawdown it was before and after Market Internals?
Max: It was more than half.
Max: Yes. It was about 12,000 drawdown for 82,000 return, and after I used Market Internals my drawdown was 5,500 but the performance over 10 years in the S&P 500 was 120,000 return. That's end of the day. That's very impressive. I did also a stress test or a robustness test when I need to change the index markets. I changed, for example, the parameter was the same, but I had not so much parameter. I had only one price pattern, it is only one price pattern for trading, and one price pattern for no trading. Then I had Market Internals filters only. This was it, very simple.
Andrew: Very simple.
Max: Then I got out, first positive open, and used a stop-loss. It’s very simple, one price pattern for trading, one price pattern for no trading, and the Market Internals filter.
I left the parameters the same, and changed only the market, NASDAQ 100, EMD, and Dow Jones mainly. The same market not only had a positive performance, the equity group also looks very good. On the index markets it said to me there, this is not because of the price patterns, it's only because of the Market Internals filter. This was a very, very good year just because... I got more confidence through this test, and so I traded more but not all days. The second half of the year I was more confident in the strategy, so I took more trades. This was my story.
Andrew: That's a really excellent result.
Max: Yes. For myself also and I don't know how it will end, the competition, maybe I will be number three or number four, but for me it doesn’t matter, because it is the best performance for myself.
This year I'm much better than I was one year ago before I bought your Trading Market Internals course. This was for me very, very important to improve myself. Yes, I'm more confident in trading, especially in trading stock indexes, because of Better Trader Academy.
That's why I can say this year was very good.
The competition, it was a party idea. Before the competition I was in Phuket, Thailand for seven months, with my friends and my wife. We had an office with my friends there and they are also traders. We were there on the beach, drinking coconuts and we spoke about the competition and there was an idea, ‘yeah, what do we think, can we do it like Larry Williams?’ ‘Yes, we can do it.’ In the beginning we had no plan how we were going to do it.
In the beginning I saw that my strategy, my grain strategy did not work, because the capital is small, so I changed my strategy. In the end it was completely different. In the beginning I started only with grains, in the end of the competition I traded only S&P 500 with Market Internals. This was a very big performance. My grains trade maybe about 5% or 10% because I trade this only three months. Most of the performance here is from the S&P 500 strategy.
Andrew: How did your friends go in the competition?
Max: No, they didn’t do it, only me. I transferred my money to the broker and I asked them, ‘what about you?’
They said: ‘It was a joke. It's very stressful, I want to enjoy my stay here in Thailand, in Phuket. I want to enjoy the beach.’
It was only a party idea, but I'm in the competition now and I'm in 3rd place. It's a very funny story.
Andrew: Your friends must be jealous.
Andrew: That's a great story. Really great.
Max: When other traders ask me ‘How much time did you prepare for the competition?’ And I didn't prepare for the competition, it was only a party idea, a fun story. Some traders will think I'm not serious. I don't know what to say, it's very funny.
Max: Yes. Right now, I'm working to make breakout systems. I'm looking for breakout systems, robust breakout systems, like in your course. Right now, that's the only thing I want to do, because I want to find breakout systems that work, that are robust. I don’t just want to stay on this end of the day strategy only, I also want to make a portfolio of strategies, to improve portfolio performance, portfolio drawdown, for example, if I use a lot of different breakout strategies. That's my goal right now and I'm working very hard on this idea right now.
But, I think you have to charge more money for this. What I get for this money compared to what I paid, I got much more money than what I paid. Now on the competition, I only get $11,000. But also, I said to other people that it's not a bill, it's an investment.
Investment in yourself, investment in your performance, and also because the interest - if I improve my performance this year, my performance in 10 years will be much better when I improve my performance one year later from now. It’s interesting. That's why I think you have to charge more money now.
Andrew: You are very right. Traders should look at education as an investment, not just initially but also in the future as you mentioned over 10 years’ time; it's like compound interest, isn't it? You just get better and better.
Max: Better and better.
Andrew: You do also need to put in the work and some people don't want to put in the work.
Max: That is also a problem, because many people ask me through Facebook, ‘can I copy your signal or your entry points, can I copy that?’ I say, ‘no, that's not possible, because first of all you need confidence in that and you get confidence only when you have to work on new strategies. When you test a lot of time, when you put a lot of time into research and testing and robustness testing, you will become confident in your strategy.’
You have to work very hard, but most people want to get rich very quickly and they think that when they spend money they will become very quickly millionaires or billionaires. That's not true.
Trading is hard work, because you'll find a lot of strategies on the internet, and maybe the strategy is also with a positive performance, but you can't trade the strategy because the first drawdown you will lose your confidence in this strategy, because it's not your strategy.
This is a big problem. In my experience, if you want to be successful in trading, you have to work hard and you have to concentrate on the research, more on the research, more on testing, a lot of testing, more thinking about how to be creative in the strategy-building, what I can use, what I can test, and so on.
There are a lot of trading coaches, they offer coachin