How to Build an Automated Trading System

[jack hershey]

Wi Wayne,

Here is the second one. ED: Sorry about those two parallel lines on the left.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2079123" width=800>

For the chat here I have been using the word "value" to describe Price of the P, V relationship. I have been using the word "paritcipation" to describe Volume of the P, V relationship.

In the illustrations I have mentioned a function input (a decending arrow) named the P, V relationship. This is a Boolean relationship.

In AHG which I mentioned and which has a 68 page compilation of stuff, they do not mention the P, V relation. I referenced to you pages 3 and 4 and pointed out a bold statement on the bottom of page 4 one up from the bottom. (this is from my memory). On those pages they are doing BPA and BPR for PA trading. As you reread them, notice that SCT is unlike PA.

A potential trader may do anything he wants to learn.

To make multiples of the daily ATR is NOT what most traders do.
There is a reason. They did not set in place a foundation that skipped nothing. They did not build their Knowledge on that foundation building block by building block completing one level at a time and building the additional levels on the foundation and totally completed levels.

If you wish, you may want to embark on such a process that these people above mentioned did not do; an alternative that is practical and logical that builds a foundation and proceeds to add building blocks level by level only when the prior level is totally complete.

Brains are not the requisite for doing almost anything. This is true for trading. Anyone can learn repeated failure over time by personally creating a learning path. To learn to trade with a regular standard brain, it is only necessary to have a plan.

I have a colleague who used to be on point for lining up the troops for BPA/BPR professionals who would work and build computer applications that improved the work places. He suggested that projects ordinarily took longer than expected.

These were all planned projects. The reason for planning the projects was economically based for all parties.

Our plan is "How to build an automated trading system".

this was a nice week. Friday to Friday things look mostly the same. The talking heads were wowing everyone with the idea that the Dow moved up a 1,000 points in just the last two days.
Did they notice how it got to the starting point of that nice upward motion?

Are we set on the foundation of:

1. Price change is how money is made.

2. You have to be in the market to make money

3. Also you have to be on the right side of the market.

If so this precipitates:

a. Be in the market all of the time.

b. Be on the right side all of the time.

c. Take all of the price movement from the beginning to the end of each price movement.

These precipitates are best used to participate by using a repeated routine. The routine needs to include provision for:

Z. Knowing what is going on

Y. Kmowing that you know what is going on.

X. Deciding what to do.

W. Doing what is required at all times.

V. Sharing partnership responsibilities with the market.

The above being a complete bounding of the opportunity, then the routine becomes defined as:

M

A

D

A

At this point the BPA plan is to get MADA set up completely

When that is done the switch is turned on and BPR is commenced to make everthing most efective and efficient.

To compress the schedule, practically speaking, we overlap BPA and BPR to the extent possible.

 

[greaterreturn]

It was cool you posted these because my re-engineering of taping seems to be a success so far and I want to post the images up here.

However, I'm shocked because the images you posted look (in my limited understand) nothing like the examples given in "Channels for B.W." I don't see the micro channels for taping at all, for example.

Instead, some shaded areas which( I'm guessing) correspond to the seven cases appear.

So Jack, for the sake of BPA (I see you're using that term now) please include a legend with charts or diagrams to make them more comprehensible.

For now, I'm going submit my chart using the color scheme and conventions which you detailed in "Channels for B.W." in hopes you can recognize them.

[edit: Wait. I want to use ehorn's color scheme as a standard until you select one, Jack. He uses different coloring for the 3 levels of channels so it seems easier to read.]

And I'll include a legend for others.

Perhaps you have optimized the color scheme and charting, I would appreciate an explanation.

One more thing, you submitted two very different looking charts. If we could select one (your choice) and use it as a standard that would make it less confusing for us "padawan" learners. (Using a "Star Wars" term.)

Sincerely,
Wayne

Quote from jack hershey:

Hi Wayne,

I've reread the thread to better get down on the BPA and BPR.

I see you are do a forex pair and you weren't able to connect with the ES.

The anotations you did missed the mark and volume was missing on the chart. I see that a good 3 level proto was provided and it was color coded.

I put up 17 charts (loose is lose, etc and it loks like duplication). They connect together in a way that the outputs of some become inputs of others.

BPA wise a person doing the BPA, in my opinion, is building the "knowledge" part of what is in the intervuee's mind. If you do not put in the BPA product these contents, then, in my opinion, there will be something left to be desired. Desire is fun as we all know but it might be nice to have all desires met for the BPR.

Who does the graphics for you in your BPA work? In the logic of trading, graphic consistency is going to be important.

I will post two displays for you that are "clean". That is they are "what you get as information feeds" that appears on screens.

Here is the first one

 

[greaterreturn]

Quote from jack hershey:

Hi Wayne,

I've reread the thread to better get down on the BPA and BPR.

I see you are do a forex pair and you weren't able to connect with the ES.

The anotations you did missed the mark and volume was missing on the chart. I see that a good 3 level proto was provided and it was color coded.

I put up 17 charts (loose is lose, etc and it loks like duplication). They connect together in a way that the outputs of some become inputs of others.

BPA wise a person doing the BPA, in my opinion, is building the "knowledge" part of what is in the intervuee's mind. If you do not put in the BPA product these contents, then, in my opinion, there will be something left to be desired. Desire is fun as we all know but it might be nice to have all desires met for the BPR.

Jack, you're correct about BPA. I'm attempting to grasp the interviewee's mind. Please exercise patience since you easily have 2500% greater understanding of trading than the analyst, in this case.

NOTE: I will only consider any results valid if you approve BOTH the BPA and BPR results. That's key to success--a partnership.

CLARIFICATION OF BPA

BPA requires several steps when the interviewee lacks any documentation of their business process (which is ordinarily the case).

You, on the other hand, have the traderuniverse.info website. Which allows us to short cut a few steps and save everyone time.

I personally consider the first step of BPA to study any documentation the interviewee already has, if any.

The next step is to agree on a high level understanding of the steps involved in the process. Usually some diagrams showing the steps and what order they occur, etc.

Next is to then step into each step and get a detailed understanding of how the interviewee handles each individual step.

BPA and BPA can operate in those individual steps which studying them both participants may agree in changing or optimizing at that level if they agree it's useful.

In the next couple of posts, I will state my understanding of the high level view of SCT and the high level steps based on studying traderuniverse.info.

Please review and correct or approve those.

Sincerely,
Wayne

 

[greaterreturn]

Quote from jack hershey:

The following posts ar keyed to this outline of some stuff that appeared previously:


This is a template for profiting from any liquid market.

There are three hurdles:



Acquisition of skills

Effective use of skills

Application of capital


There are four stages:



Learn to learn

Know how the mind works

Have a business plan

Have a trading plan


People learn best from helping others.


The learning process

Through careful study, the steps of price/volume cycling are internalized.

The exposition is like a reading test. A reader may gain a basic level of comprehension, without achieving real understanding.

Jack,

I wish to address the first steps in your process of learning to learn.

I'd like to share a little personal information on that subject to find out whether you agree that I already have those skills so we can continue directly with learning SCT itself.

I recognize you have something at stake here in your desire to share your SCT technique with others and so you have a right to consider whether I'm "qualified" to learn and succeed with SCT. Fair enough.

For anyone else, you will probably view this post as bragging so please re-read the above disclaimer or skip the rest of this post.

Okay. So here goes.

I haven't read the specific books you recommend on learning to learn.

However, I have read other books. In particular I enjoy the research on the differences between the right and left brain hemispheres. They talk of right and left brain dominant individuals and rare persons without dominance.

I mention that because testing revealed that I am one of those unusual persons with non-dominance. In general, that means both hemispheres operate at capacity.

That's what I attribute to be the cause of the following accomplishments so far in life.

Folks, if you're reading this, please remember these things can be both a blessing and a curse simultaneously.

In grade school I was tested and labeled "gifted and talented"--talk about an needless ego boost--sheesh.

The school system sent me to advance classes to develop the mind. Most practically speaking, they introduced me to computers and taught me to type and basic programming at age 9.

So I became the quintessential "geek" and "whiz kid" of the 80's.

They eventually skipped me several grades to start as freshman in high school while still a kid. I recall often helping teachers with their computer homework for their college classes. Of course, I won numerous scholastic awards both in school and in state competitions for achievements in math, science, and physics.

I further skipped several classes in high school by testing out of them after reading a book on each subject.

Sadly, the bigger kids tossed me around like a football and nicknamed me "Einstein" until I had a growth spurt finally.

Anyway, on graduation I had superior SAT and ACT results that landed full scholarships at prestigious universities. They said I could easily study and test out of many of the college classes too and finish very early. But I skipped that and started working as a kid for a company doing software engineering.

Basically, I was never worried (as you can imagine) about the ability to make money (with or without college) so I wanted to start making money and do philanthropical and volunteer work.

However, did that stop my learning process? No,

On the contrary, I've often been hired to train staff on different architecture or design concepts and find them all college educated sometimes with PHD's. In fact, I get along well with the more educated unless they resent my achievements without education.

The essence of my "affliction" is that I can learn most things instantly and completely with the merest effort. So you can imagine that I'm often attracted to learning topics that present more of a challenge. That led me to learning natural languages in addition to the dozens of computer languages and technologies.

So, I learned to speak 3 natural languages fluently. French, Spanish, Creole and basic Mandarin Chinese. When I say fluently, it means that natives can't distinguish that I'm a foreigner.

Of course, I mastered other topics ranging from playing Chess to repair of practically anything mechanical or electronic.

To come to the point, I'm committed to mastering trading for two reasons. It's both because of the opportunity to use money for philanthropic work and as a learning challenge.

Jack, in comparison, you strike me as having significantly superior intellectual capacity. I have on occasion worked with people having far greater mental capacity than myself. And you are obviously one of them.

One interesting difference between us I will note in an effort to prove my qualifications for this. It is that I have received extensive training in teaching skills through my volunteer work over the last 20 years. So many people consider me an accomplished class room trainer, one-on-one coach, and public speaker. By they way, I have achieved those in each of the fluent languages. They claim I give riveting speaches. Well, I don't know about all that!

Anyway, how does that relate to my qualifications for SCT? It comes from the extreme utility of a cross-disciplinary approach to learning. In other words, it happens frequently that something learned in one area creates a great advantage in another.

For example, due to extensive experience and training at teaching, it has greatly enhanced my own understanding of learning and how to learn. It makes it very easy to spot deficiencies in another person's teaching skills and allows me to compensate for them with my own learning skills and analysis skills.

It seems that has made me excel at BPA and BPR in particular. Even when hired for other purposes, companies always end up asking me to work in that area because most technical people fall down at effective listening, analysis, and learning skills.

CONCLUSION

1. Jack, do you agree to my being qualified to accomplish this goal?

2. If so, can we check off the steps of learning to learn and focus entirely on correcting my understanding of SCT?

Please, let me know. If you feel that I must take the time to read these books about learning and the mind to get familiar with the terminology that you recommend, I will consider it.

However, keep in mind that there's probably a limit to how far I will go in this exercise before seeing some concrete results. I also recognize you have limits if I fail to meet your expectations. It's a partnership, if you continue to participate.

Let me express again the reasons why I request you to please continue patiently to assist me. I am fascinated by SCT because of your apparently complete mastery of the various tools of trading, price, volume, the dom, and even the psychology of the trading discipline. Add to that your personal mastery of that for over 50 years.

Sincerely,
Wayne

 

[greaterreturn]

Quote from jack hershey:

Wi Wayne,

If you wish, you may want to embark on such a process that these people above mentioned did not do; an alternative that is practical and logical that builds a foundation and proceeds to add building blocks level by level only when the prior level is totally complete.

I have a colleague who used to be on point for lining up the troops for BPA/BPR professionals who would work and build computer applications that improved the work places. He suggested that projects ordinarily took longer than expected.

These were all planned projects. The reason for planning the projects was economically based for all parties.

Jack, I want to pursure this in your way. I expect you to recognize that I'm committed to doing so without any need to repeatedly "sell" me on the need to do so.

As far as BPA/BPR, that field just like every other has it's most common elements as people struggling to be competent to perform the task.

I remember one project in particular that reeled out of control for 6 months with everyone across the company extremely frustrated. They fired the analysis/architect and put me in charge.

I did very rapid BPA/BPR including having all the department heads from different divisions fly in from around the country to discuss it. Then I worked with the developers on the project to redirect their efforts in a more effective direction.

It was solved completely within 4 weeks to everyone's satisfaction including mine since I got a promotion and a raise.

BPA/BPR essentially involves effective listening, rapid learning, and ability to negotiate among other things.

I hope we can address and agree to my qualifications to do this and dispense with that discussion because I want to focus on learning SCT.

Sincerely,
Wayane

 

[greaterreturn]

Quote from jack hershey:

Wi Wayne,

Our plan is "How to build an automated trading system".

At this point the BPA plan is to get MADA set up completely

When that is done the switch is turned on and BPR is commenced to make everthing most efective and efficient.

To compress the schedule, practically speaking, we overlap BPA and BPR to the extent possible.

[/QUOTE]

Jack,

You are the expert at SCT. Undisputed. Have you ever worked or gained experience at BPA/BPR? I know you can read up and get a quick grasp of it just like I can read get a quick grasp of SCT. But that's far from being competent enough to explain it to others. So let's please dispense with discussing how BPA/BPR works. That's not the point of this thread, I consider that off topic.

I ask you to allow me to control that aspect of this process which I will do without explaining BPA/BPR and distracting from the purpose. In real BPA/BPR, I never refer to that at all, it distracts. I only used that in starting out this thread to trigger curiosity of yourself and other readers. So far, that seems succesful.

But now, let's please avoid even using those acronyms again in this thread. Readers will get tired of too many posts that are off topic.

What is more on topic is building your confidence that I am proceeding with understanding SCT.

My next statement might surprise you. The key to this whole exercise is *not* for you to explain SCT. I'm sure you agree that you already explained it ad infinitum on the traderuniverse.info website and in threads and posts on ET.

At this point, the goal is for me to explain it back to you and demonstrate with charts that I understand it and for you to correct any deficiencies in my understanding. Any other efforts are extraneous and unproductive.

As you know, that is the essence of effective teaching. The most effective teachers get the students to do most of the activity of talking or practicing what they learned.

Now, while gaining understanding of SCT, I will be forced to ask if certain things can be done differently and still work for a variety of practical reasons. That comes both as compromises since computers can't do everything the human mind is capable of and also as efficiencies since computers can do some things the brain could never do with the same speed.

I trust you to teach me SCT. You need to trust me to guide this activity with your assistance for a successful conclusion. If you cannot, that's fair. Just let me know.

Sincerely,
Wayne

 

[greaterreturn]

Jack,

Let's establish the baseline and get agreement there. I will show charts and demonstrate why I wish to use this baseline and hopefully you agree it will work for SCT. If not we can make adjustments.

Simultaneously, these graphs show my re-engineered taping for your visual inspection and, hopefully, approval.

Okay, first I was following ehorn's image shown here. It seems to have a clear, readable color scheme.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2075200" width="800" height="600">
[click on the image to view Full Size]

So here's my take on this with only level I taping displayed on a 1 minute USD/JPY chart with volume.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2079339" width="800" height="600">
[click on the image to view Full Size]

I have chosen Forex due to limited capital and the limited minimum margin of only $100.00 plus the execellent liquidity of the markets. That limited margin allows me to control risk as I have $800 in my account. So I can trade with one micro lot ($100 margin) without taking the risk of ruin in the account. Of course, I can come up with a few thousand more as seed money for a working strategy. But minimum margins in ES or other futures disallow that granular control of risk and such limited capital.

Most importantly examine 3 things on the chart:

1. Does the volume look representative? To me it looks very much like ES or any other volume. I think my extrapolation of volume is sufficient. If not, let me know.

2. Does the taping look accurate? To me it achieves the same or close enough (remember sufficiency) to doing it by hand.

3. Are we okay with the color scheme, background color, light green for the tapes, red and blue for up and down volume, etc. Is the one minute bar alright or do you want 2 minutes? etc.

Let's forgo discussing how I did the taping until you examine and approve they're good enough. If you find something insufficient let's point that out. I can probably fix it.

Sincerely,
Wayne

 

[greaterreturn]

Interesting tidbit about the taping above.

On my test day, September 4, 2008, the simple trade rule of reversing on the trend line break (see the red and green arrows) gives a 250 pip profit for the day on 1 contract.

That's 2 X the Range for that 7am to 5 pm time frame. That's after counting commission and the spread.

It did similarly on September 5th. But on Monday, the 8th, it loses money.

Mainly, it's because the trades enter and exit without understanding the P,V relationship yet.

So if you, Jack, can approve the basic taping, let's move on to the next step.

I assume that will be adding the next level of channels. the intermediate level, right?

And for volume, I need to search and find the algorithm for creating the "Gaussian" indicator of volume, correct?

Sincerely,
Wayne

 

[greaterreturn]

Jack,

Huge success!! My tapes so far are a tradable, profitable strategy. Just like you promise, these tools are "building blocks" that we can add to.

I can't wait to see how P,V and the rest add to these already good results.

Here's what happened, I was re-reading Channels for Building Wealth and made some adjustments to the taping to fit your genius paradigm.

Specifically,

1. It's testing now only during active times. So eliminated the following:

A. Removed the lunch break.
B. Starting 15 minutes after New York open on USD/JPY.
C. Only trading AM from 8:15 to Noon EST.

(Those minor changes greatly enhanced the profitability.)

2. I fixed the tapes to handle breakouts of price to either side of the channel. In the previous chart it only handled breakouts to the right line.

Here's the graph, afterward you can check out statistics generated by the ATS.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2079525" width="800" height="600">

Oh well, I can't find a way to put the complete stats and trade-by-trade info in a readable format on ET.

So here's a synopsis.

It makes 30 trades during the time of 8:15 to noon EST on USD/JPY on September 4th, 2008 for an average of 3.45 pips per trade after spread and commission or 101 pips total.

Note, that doesn't include slippage which averages 1.4 pips on the simulated server. I don't have slippage stats on production. I leave slippage out because I plan to move the server to a hosting facility to get the time down by 1/2 second.

By the way, I tried this simple strategy out on several other days, and some are even MORE profitable while others a little less. So this is a tradable system. But it can still use improvement by SCT, that much is certain.

Sincerely,
Wayne

 

[greaterreturn]

Jack,

Two considerations:

1. There some enhancements to make to the above taping. For example, in Channels for B.W. you mention that large range bars should start the taping over. The chart above has a large bar right at 8:15 which sets the initial tape off poorly. I could force a reset immediately after large bars. There's probably other enhancements.

2. Besides that and other minor enhancements, I feel we can claim "sufficiency" with the ATS at taping and move to the next building block. My guess is that Level II intermediate trends are next. Or should we get the volume indicators working?

I'd like to proceed with what will specifically improve the trades on the baseline that I propose using above. Some of the first few trades are messy but get better reversals as the morning progresses.

Before proceeding, I intend to wait for your next posts in response to mine about my qualifications at learning ability and also a review of these taping results and the baseline graphics.

Please advise.

In the meantime, I have some "housekeeping" and "debriefing" to do some of which is technical stuff and others are just re-reading your documents to find anything missed.

So I humbly await your decision in these areas.

Sincerely,
Wayne