Designing and Building a Profitable Automated Trading System

S

ScottD

Calling all application developers who are interested in:

Designing and Building a Profitable Automated Trading System based on Stochastic and MACD indicators

This thread revives dialog started in another thread that was ultimately deleted for trolling reasons. Moderators are encouraged to aggressively cleanse this thread to maintain high signal-to-noise ratio. No need to wait for Complaints. Just delete any post that in your estimation has more noise than signal.

Recently Jack Hershey suggested that someone post an S&P 500 futures chart with only Volume, MACD(5,13,6), Stochastic(14,1,3) and Stochastic(5,2,3) – but not Price. Jack said that he would demonstrate how to trade it profitably.

Sounded interesting, so I posted a price-less chart. I threw a curveball (pun intended) and posted a US 10 Year Treasury Notes futures chart instead of S&P 500 futures. In addition, I removed the time and price axes and up/down volume color coding.

As it turns out, Jack realized it was not the ES and was able to identify successful trades, capturing significant profits.

Jack has offered to:
• share and articulate the design of this particular trading system, let's call it The Priceless Method.
• help developers in this thread to code, test and refine it.

I’ll post the following charts to kickoff the dialog:
• The original price-less chart that I posted
• Jack’s response with analysis and trade decisions
• “Answer Key” that I posted with Price restored and Jack’s trades superimposed.
 
Jack’s response with analysis and trade decisions, attached.

<img src=http://elitetrader.com/vb/attachment.php?s=&postid=2213677>
 

Attachments

"Answer Key” that I posted with Price restored and Jack’s trades superimposed.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2213682 width=800>
 

Attachments

This was initially done in a thread in the Psychology forum.

We were told that the thread was going to be deleted and it was suggested to move the dialogue to the TA part of ET.

Coding the combination of indicators wasn't possible when the indicators were originally used.

Times have changed and a lot more is possible in coding and the use of PC's and their displays.

By making a brief record here, we can deal with how indicators work, their signals and how improving systems from level to level works to improve effectiveness, efficiency and optimization.
 
Excerpt from prior thread follows. Some comments relate specifically to the US 10 Year Treasury Notes chart in the second post of this thead.

Quote from jack hershey:

To code this up as a cash cow even though the indicators are not tuned to the price volatility, do the following.

For Longs:

Enter on the Stochastic(5,2,3) 50% crossover-up with the 4 IFs shown using absolute values for 2 MACD's, D of MACD, and Volume slope (probably not showing + too well here).

Use an entwine gate (HOLD signal) on both MACD and Stochastic(14,1,3) with a limit of 50% crossover on the Stochastic(14,1,3) fast line (yellow).

The Exit is coded with the 4 IFs shown using absolute values of 2 MACDs, C of MACD, and volume slope (-).

For Shorts, do the converse.

Coding using indicators involves their respective equations and the values are used for gating as indicated as well.

4 IFs means use an "and" for the logic combo.

Make seasonal adjustments by using 45 day add delete on the "lookup" table for the IFs.

Since this chart doesn't cover an open and a close of RTHs, I didn't put any synch or liquidity requirements into this effort. For an ES 5 minute chart I would have.
More...
 
Here is the stacking for the system we will use.

attachment.php
 

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Scott noted the past post with the signals and how they fit together for a trade.

For simplicity each trade turn will be a profit segment comprised of a beginning and an end. It is trend following that is based on mathematically created indicators that use information from bars.

We are neutral biased as we make us of two types of indicators: MACD's and STOCH's
 
To enter a trade, the best thing to do is deal with the sentiment of the market.

Money is made through price change and the market sentiment shows what type of trade is in favor.

We will drill down deeper and deeper as we go through this.

All trading approaches have themes for making money. three principles will come into view as we do thecoding for this approach.

The uses of each part were posted before and I will note them on the basic stack next.
 
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