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How to Build an Automated Trading System
- Thread starter greaterreturn
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Thanks everyone for this assistance.
Actually, I'm almost done automating the SCT system.
I'm only working out the timing piece of it now.
The timing of the market varies from day to day so I'm setting up an automated way of measuring the timing and adjusting to it variably throughout the day to forecast the timing point.
The system already trades using smart money volume as a leading indicator and hits the highs and lows almost perfectly throughout the morning.
Unfortunately, Jack expects an ATS developer to go through all the learning steps of a human. But it's a computer not a person.
Anyway, the high level rules to understand and to automate SCT turn out to be far simpler than it appears.
1. Trade Signals: First, use only volume from smart money. Jack and Spyder tell human students to use smart money volume later when they're more advanced. But even if you're a human, use it RIGHT AWAY. It clears out all the clutter and shows you exactly when to trade with certainty. It's the smart money/big money that moves markets. You will probably have to capture your own tick data and code yourself a custom volume indicator to accomplish this. But that's why you want to code an ATS anyway, right?
2. Timing: Use some kind of an indicator like a Zig Zag to see the major price moves clearly AFTER they occur simply to synchronize with the timing of the market. That's the essence of what human students learn by doing all the work of taping and channeling.
NOTE: You can skip all the taping and channeling for an ATS it doesn't help the ATS one iota. Those are all tools to help human students "see" price movement, have a context to the volume data, and get a feel for the market timing mentioned above. But you can do all that with a simple zig zag. You'll see this on some of Jack's charts too. Just do NOT use zig zag for trading signals, it only looks backwards.
Once you have a good volume indicator that has filtered out everything except the big money/smart money players, just trade with them and watch the timing of the market turns. The timing varies from day to day and can even change within the day. That way you only trade when it's time to do so. It's amazing to see when the turns will happen in advance and that "shot of volume" by smart money simply confirms you got it right!
Timing is the most critical because once you figure out the timing, it weeds out all the intermediate false "signals" by smart money before it's time for the market to turn. The market does not behave erratically (except right after news) it's orderly and rhythmic. Just measure the timing between major highs and lows during the day and you'll see it, clear as Dallas on a hot day.
3. Execution. Finally, build yourself some DOM indicators like the total size of the dom, ratios of bid to ask, etc. Keep an eye on those. You will clearly see how to use them to weed out risky trades if you chart them for a while. That's what I did, anyway.
You can also use the DOM when you have so much money to trade that you need to make sure there's enough volume at the bid / ask price. Jack recommends spreading your trades over 5 partial fills as the market turns. I'll do that two once I get past trading one lot.
I prefer not to share code at this point but I'll answer questions.
It's going to be cool to start extracting all that the market offers! Thanks Jack for sharing.
Finally, make sure you read and re-read Jack's info at traderuniverse.info. Yes, I know most of it is meant for a human student, with motivational and psychology mumbo jumbo, but there's also very critical and technical points he brings out about the markets that I incorporated. They're too numerous to remember or mention without sharing actual code.
Still if you start with the foundation above it's almost impossible to fail.
Jack will of course confirm the above concepts to be true or you can read all his previous posts and the website and see for yourself. It feels like it took a gargantuan effort to do the analysis and weed out the irrelevant information to get these all important nuggets.
Hats off to Jack for sharing this with all of us, I'm indebted and grateful. And thanks, Jack, for your encouragement and confidence in spite of some confusion.
I'll also study his ideas for asset allocation and management once I get to that bridge of having too much money to deal with. *smile*
Sincerely,
Wayne
Actually, I'm almost done automating the SCT system.
I'm only working out the timing piece of it now.
The timing of the market varies from day to day so I'm setting up an automated way of measuring the timing and adjusting to it variably throughout the day to forecast the timing point.
The system already trades using smart money volume as a leading indicator and hits the highs and lows almost perfectly throughout the morning.
Unfortunately, Jack expects an ATS developer to go through all the learning steps of a human. But it's a computer not a person.
Anyway, the high level rules to understand and to automate SCT turn out to be far simpler than it appears.
1. Trade Signals: First, use only volume from smart money. Jack and Spyder tell human students to use smart money volume later when they're more advanced. But even if you're a human, use it RIGHT AWAY. It clears out all the clutter and shows you exactly when to trade with certainty. It's the smart money/big money that moves markets. You will probably have to capture your own tick data and code yourself a custom volume indicator to accomplish this. But that's why you want to code an ATS anyway, right?
2. Timing: Use some kind of an indicator like a Zig Zag to see the major price moves clearly AFTER they occur simply to synchronize with the timing of the market. That's the essence of what human students learn by doing all the work of taping and channeling.
NOTE: You can skip all the taping and channeling for an ATS it doesn't help the ATS one iota. Those are all tools to help human students "see" price movement, have a context to the volume data, and get a feel for the market timing mentioned above. But you can do all that with a simple zig zag. You'll see this on some of Jack's charts too. Just do NOT use zig zag for trading signals, it only looks backwards.
Once you have a good volume indicator that has filtered out everything except the big money/smart money players, just trade with them and watch the timing of the market turns. The timing varies from day to day and can even change within the day. That way you only trade when it's time to do so. It's amazing to see when the turns will happen in advance and that "shot of volume" by smart money simply confirms you got it right!
Timing is the most critical because once you figure out the timing, it weeds out all the intermediate false "signals" by smart money before it's time for the market to turn. The market does not behave erratically (except right after news) it's orderly and rhythmic. Just measure the timing between major highs and lows during the day and you'll see it, clear as Dallas on a hot day.
3. Execution. Finally, build yourself some DOM indicators like the total size of the dom, ratios of bid to ask, etc. Keep an eye on those. You will clearly see how to use them to weed out risky trades if you chart them for a while. That's what I did, anyway.
You can also use the DOM when you have so much money to trade that you need to make sure there's enough volume at the bid / ask price. Jack recommends spreading your trades over 5 partial fills as the market turns. I'll do that two once I get past trading one lot.
I prefer not to share code at this point but I'll answer questions.
It's going to be cool to start extracting all that the market offers! Thanks Jack for sharing.
Finally, make sure you read and re-read Jack's info at traderuniverse.info. Yes, I know most of it is meant for a human student, with motivational and psychology mumbo jumbo, but there's also very critical and technical points he brings out about the markets that I incorporated. They're too numerous to remember or mention without sharing actual code.
Still if you start with the foundation above it's almost impossible to fail.
Jack will of course confirm the above concepts to be true or you can read all his previous posts and the website and see for yourself. It feels like it took a gargantuan effort to do the analysis and weed out the irrelevant information to get these all important nuggets.
Hats off to Jack for sharing this with all of us, I'm indebted and grateful. And thanks, Jack, for your encouragement and confidence in spite of some confusion.
I'll also study his ideas for asset allocation and management once I get to that bridge of having too much money to deal with. *smile*
Sincerely,
Wayne
Folk,
Just to make it clear, I don't want to diminish the accomplishment of Jack, Spyder and other traders and trade SCT discretionary.
Trading is one of the more difficult things that a human being can accomplish effectively.
It requires the mind and body to be constantly near peak performance. You must make critical decision with steady regularity.
Once human students really learn how to use smart money the dom and the advanced timing tools, it can feel easy.
It's much like a jet pilot who find flying easy after going through flight training, testing, simulators, and flying with an instructor and many other practice hours.
It all becomes rather automatic with enough skills.
Again, all irrelevant to automating a trading strategy. It requires completely different skills.
For example, those software developers who build and maintain auto pilot systems never have to get a pilot's license or go through all that training. Instead they need to learn the technical intricacies of all the instruments and controls of the plane as well as automating navigation, etc.
If you have the analysis, design, and architecture skills for software development, then you need to leverage those to build your strategy.
Sincerely,
Wayne
Just to make it clear, I don't want to diminish the accomplishment of Jack, Spyder and other traders and trade SCT discretionary.
Trading is one of the more difficult things that a human being can accomplish effectively.
It requires the mind and body to be constantly near peak performance. You must make critical decision with steady regularity.
Once human students really learn how to use smart money the dom and the advanced timing tools, it can feel easy.
It's much like a jet pilot who find flying easy after going through flight training, testing, simulators, and flying with an instructor and many other practice hours.
It all becomes rather automatic with enough skills.
Again, all irrelevant to automating a trading strategy. It requires completely different skills.
For example, those software developers who build and maintain auto pilot systems never have to get a pilot's license or go through all that training. Instead they need to learn the technical intricacies of all the instruments and controls of the plane as well as automating navigation, etc.
If you have the analysis, design, and architecture skills for software development, then you need to leverage those to build your strategy.
Sincerely,
Wayne
Folks,
Maybe you would like to see a chart of what I automated so far. I eliminated the tapes and scrapped the channels. That at least makes it easier to see the trades.
The trades are made specifically by using the smart money, volume indicator that you see.
(Click the image for a larger view.)
<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2080526
" height=600 width=800>
NOTE: Black arrows mean the strategy went flat due to DOM information.
The only other caveat is the timing threshold which is fixed at present so a few trades are off.
This is a 100tick, USD/JPY chart from 8:00 to Noon on September 4, 2008.
The stats are average of 4.66 pips per trade for 21 trades or 97 pips profit total after commission and spread. I'll have a little bit over a pip of slippage probably for 76 pips net for the morning.
Interestingly, this is only 1/2 day and Jack predicts 30 to 40 trades a day for SCT expert. Maybe I should try it in the afternoon to see what it does after lunch.
I have tested it on several other days (morning only) very successfully. Simply the timing threshold varies. And I'll have that auto generated shortly.
Interestingly, that's already 150% of the range for this period. There's room, I believe to nearly double these results with more refinement.
Sincerely,
Wayne
Maybe you would like to see a chart of what I automated so far. I eliminated the tapes and scrapped the channels. That at least makes it easier to see the trades.
The trades are made specifically by using the smart money, volume indicator that you see.
(Click the image for a larger view.)
<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2080526
" height=600 width=800>
NOTE: Black arrows mean the strategy went flat due to DOM information.
The only other caveat is the timing threshold which is fixed at present so a few trades are off.
This is a 100tick, USD/JPY chart from 8:00 to Noon on September 4, 2008.
The stats are average of 4.66 pips per trade for 21 trades or 97 pips profit total after commission and spread. I'll have a little bit over a pip of slippage probably for 76 pips net for the morning.
Interestingly, this is only 1/2 day and Jack predicts 30 to 40 trades a day for SCT expert. Maybe I should try it in the afternoon to see what it does after lunch.
I have tested it on several other days (morning only) very successfully. Simply the timing threshold varies. And I'll have that auto generated shortly.
Interestingly, that's already 150% of the range for this period. There's room, I believe to nearly double these results with more refinement.
Sincerely,
Wayne
Attachments
Quote from greaterreturn:
Thanks everyone for this assistance.
Actually, I'm almost done automating the SCT system.
I'm only working out the timing piece of it now.
The timing of the market varies from day to day so I'm setting up an automated way of measuring the timing and adjusting to it variably throughout the day to forecast the timing point.
The system already trades using smart money volume as a leading indicator and hits the highs and lows almost perfectly throughout the morning.
Unfortunately, Jack expects an ATS developer to go through all the learning steps of a human. But it's a computer not a person.
Anyway, the high level rules to understand and to automate SCT turn out to be far simpler than it appears.
1. Trade Signals: First, use only volume from smart money. Jack and Spyder tell human students to use smart money volume later when they're more advanced. But even if you're a human, use it RIGHT AWAY. It clears out all the clutter and shows you exactly when to trade with certainty. It's the smart money/big money that moves markets. You will probably have to capture your own tick data and code yourself a custom volume indicator to accomplish this. But that's why you want to code an ATS anyway, right?
2. Timing: Use some kind of an indicator like a Zig Zag to see the major price moves clearly AFTER they occur simply to synchronize with the timing of the market. That's the essence of what human students learn by doing all the work of taping and channeling.
NOTE: You can skip all the taping and channeling for an ATS it doesn't help the ATS one iota. Those are all tools to help human students "see" price movement, have a context to the volume data, and get a feel for the market timing mentioned above. But you can do all that with a simple zig zag. You'll see this on some of Jack's charts too. Just do NOT use zig zag for trading signals, it only looks backwards.
Once you have a good volume indicator that has filtered out everything except the big money/smart money players, just trade with them and watch the timing of the market turns. The timing varies from day to day and can even change within the day. That way you only trade when it's time to do so. It's amazing to see when the turns will happen in advance and that "shot of volume" by smart money simply confirms you got it right!
Timing is the most critical because once you figure out the timing, it weeds out all the intermediate false "signals" by smart money before it's time for the market to turn. The market does not behave erratically (except right after news) it's orderly and rhythmic. Just measure the timing between major highs and lows during the day and you'll see it, clear as Dallas on a hot day.
3. Execution. Finally, build yourself some DOM indicators like the total size of the dom, ratios of bid to ask, etc. Keep an eye on those. You will clearly see how to use them to weed out risky trades if you chart them for a while. That's what I did, anyway.
You can also use the DOM when you have so much money to trade that you need to make sure there's enough volume at the bid / ask price. Jack recommends spreading your trades over 5 partial fills as the market turns. I'll do that two once I get past trading one lot.
I prefer not to share code at this point but I'll answer questions.
It's going to be cool to start extracting all that the market offers! Thanks Jack for sharing.
Finally, make sure you read and re-read Jack's info at traderuniverse.info. Yes, I know most of it is meant for a human student, with motivational and psychology mumbo jumbo, but there's also very critical and technical points he brings out about the markets that I incorporated. They're too numerous to remember or mention without sharing actual code.
Still if you start with the foundation above it's almost impossible to fail.
Jack will of course confirm the above concepts to be true or you can read all his previous posts and the website and see for yourself. It feels like it took a gargantuan effort to do the analysis and weed out the irrelevant information to get these all important nuggets.
Hats off to Jack for sharing this with all of us, I'm indebted and grateful. And thanks, Jack, for your encouragement and confidence in spite of some confusion.
I'll also study his ideas for asset allocation and management once I get to that bridge of having too much money to deal with. *smile*
Sincerely,
Wayne
First off, great work and its good to know all that work can be summed into smart money flows. Can you elaborate on the Smart Money Volume indicator? Is it simply a filter of large lot sizes streaming in? If so what size to use and can you point to the indicator definition?
thanks
GreatReturn,
Having gone through most pages in this thread and now seeing the chart you posted, I guess I am missing any kind of connection. Would you be able to share with us in a few lines how you came up with the trading signals in your chart? What I mean is, could you please clarify precisely how your long/short signal on the USDJPY pair is generated. Also, more generally, is this a reversal system or a momentum breakout system? I guess I got pretty confused with the tons of earlier charts that more remind me of a Human Resource training than anything about trading.
THanks for the clarification.
Having gone through most pages in this thread and now seeing the chart you posted, I guess I am missing any kind of connection. Would you be able to share with us in a few lines how you came up with the trading signals in your chart? What I mean is, could you please clarify precisely how your long/short signal on the USDJPY pair is generated. Also, more generally, is this a reversal system or a momentum breakout system? I guess I got pretty confused with the tons of earlier charts that more remind me of a Human Resource training than anything about trading.
THanks for the clarification.
Quote from greaterreturn:
Folks,
Maybe you would like to see a chart of what I automated so far. I eliminated the tapes and scrapped the channels. That at least makes it easier to see the trades.
The trades are made specifically by using the smart money, volume indicator that you see.
(Click the image for a larger view.)
<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2080526
" height=600 width=800>
NOTE: Black arrows mean the strategy went flat due to DOM information.
The only other caveat is the timing threshold which is fixed at present so a few trades are off.
This is a 100tick, USD/JPY chart from 8:00 to Noon on September 4, 2008.
The stats are average of 4.66 pips per trade for 21 trades or 97 pips profit total after commission and spread. I'll have a little bit over a pip of slippage probably for 76 pips net for the morning.
Interestingly, this is only 1/2 day and Jack predicts 30 to 40 trades a day for SCT expert. Maybe I should try it in the afternoon to see what it does after lunch.
I have tested it on several other days (morning only) very successfully. Simply the timing threshold varies. And I'll have that auto generated shortly.
Interestingly, that's already 150% of the range for this period. There's room, I believe to nearly double these results with more refinement.
Sincerely,
Wayne
To answer some of the questions. Keep in mind that the smart money signals are meaningless to a computer unless you give it some context for timing.
As humans we can see a chart. In fact, what Jack teaches about taping, channels, etc is useful for humans to learn and build confidence in the systematic nature of markets.
So if you or the ATS already know approximately where the turn is going to occur, then a smart money signal can be just the ticket you need to get on the train.
I don't feel inclined to spell out details for two reasons:
1. What I did was on USD/JPY and while I feel certain it applies to other markets, they will be different, of course.
2. I'm not at that point in my life to act so philanthropically as Jack does.
So let me simply emphasize the common sense factor you can use as you analyze the data yourself.
1. Only follow the money of traders who trade large enough to MOVE the market. That will be relative to each market, of course. In fact, it occurs to me that maybe a generic formula could be created after studying diverse markets.
2. There are other large traders out there doing normal day-to-day transaction. Those are big money but not necessarily profit motivated. So you must look at where you anticipate turns to occur.
Jack, I think, made words to describe this called mode and pace.
It's unclear if that was intended to obfuscate the issue or not.
Sincerely,
Wayne
P.S. Please consider the efforts of my posts to primarily encourage you that success is possible and to tell you where to look rather than do your work for you for free.
As humans we can see a chart. In fact, what Jack teaches about taping, channels, etc is useful for humans to learn and build confidence in the systematic nature of markets.
So if you or the ATS already know approximately where the turn is going to occur, then a smart money signal can be just the ticket you need to get on the train.
I don't feel inclined to spell out details for two reasons:
1. What I did was on USD/JPY and while I feel certain it applies to other markets, they will be different, of course.
2. I'm not at that point in my life to act so philanthropically as Jack does.
So let me simply emphasize the common sense factor you can use as you analyze the data yourself.
1. Only follow the money of traders who trade large enough to MOVE the market. That will be relative to each market, of course. In fact, it occurs to me that maybe a generic formula could be created after studying diverse markets.
2. There are other large traders out there doing normal day-to-day transaction. Those are big money but not necessarily profit motivated. So you must look at where you anticipate turns to occur.
Jack, I think, made words to describe this called mode and pace.
It's unclear if that was intended to obfuscate the issue or not.
Sincerely,
Wayne
P.S. Please consider the efforts of my posts to primarily encourage you that success is possible and to tell you where to look rather than do your work for you for free.
Hi Wayne,
I'm very much enjoying your thread. Thanks for sharing your progress. You have inspired me to dust off my auto SCT model again. I am clearly in a different league than you and I am probably taking an entirely different approach, but hopefully, I will get to the same finish line. Yesterday I finished up my algorithm to draw tapes. The attached chart is a snapshot for the RUT (daily). Of course the algorithm can be applied to any symbol and any fractal. Ultimately I will apply it to the ES 5-min. For clarity purposes I have striped down the chart to show only tapes. I will post more in the future as my time permits and as my model progresses.
Regards,
Bill
I'm very much enjoying your thread. Thanks for sharing your progress. You have inspired me to dust off my auto SCT model again. I am clearly in a different league than you and I am probably taking an entirely different approach, but hopefully, I will get to the same finish line. Yesterday I finished up my algorithm to draw tapes. The attached chart is a snapshot for the RUT (daily). Of course the algorithm can be applied to any symbol and any fractal. Ultimately I will apply it to the ES 5-min. For clarity purposes I have striped down the chart to show only tapes. I will post more in the future as my time permits and as my model progresses.
Regards,
Bill
Attachments
Wayne,
So, let me make sure I understand: You are saying your primary purpose of this thread is to encourage people that trading can be successful..correct? Allright, although it did not sound like that in the beginning. I was curious how you build your own ATS system of which chats you displayed in detail but did not want to elaborate how you came up with those charts. Guess I misunderstood the subject then, as I already trade successfully and am aware that trading can be successful.
Also, you speak about smart money and the flow of big traders. I work as options trader and am not aware of any sources that would guide a retail trader without access to inter dealer brokers or other large sell-side desks who is moving fx positions and how large. Please enlighten us. Yes, I admit I challenge you as you as made claims and use those to enter/exit trades but I hope you take it in a positive way in order to get the most out of all the comments in this thread.
When other traders (chose to) talk about their systems then they usually can come up with detailed algorithms for their entries, exits, position sizing, and the like. I kind of miss this, unless we can agree that all you want to communicate some broad concepts here (which I think have been covered a multiple times elsewere in ET). Just my 2 cents...
So, let me make sure I understand: You are saying your primary purpose of this thread is to encourage people that trading can be successful..correct? Allright, although it did not sound like that in the beginning. I was curious how you build your own ATS system of which chats you displayed in detail but did not want to elaborate how you came up with those charts. Guess I misunderstood the subject then, as I already trade successfully and am aware that trading can be successful.
Also, you speak about smart money and the flow of big traders. I work as options trader and am not aware of any sources that would guide a retail trader without access to inter dealer brokers or other large sell-side desks who is moving fx positions and how large. Please enlighten us. Yes, I admit I challenge you as you as made claims and use those to enter/exit trades but I hope you take it in a positive way in order to get the most out of all the comments in this thread.
When other traders (chose to) talk about their systems then they usually can come up with detailed algorithms for their entries, exits, position sizing, and the like. I kind of miss this, unless we can agree that all you want to communicate some broad concepts here (which I think have been covered a multiple times elsewere in ET). Just my 2 cents...
Quote from greaterreturn:
To answer some of the questions. Keep in mind that the smart money signals are meaningless to a computer unless you give it some context for timing.
As humans we can see a chart. In fact, what Jack teaches about taping, channels, etc is useful for humans to learn and build confidence in the systematic nature of markets.
So if you or the ATS already know approximately where the turn is going to occur, then a smart money signal can be just the ticket you need to get on the train.
I don't feel inclined to spell out details for two reasons:
1. What I did was on USD/JPY and while I feel certain it applies to other markets, they will be different, of course.
2. I'm not at that point in my life to act so philanthropically as Jack does.
So let me simply emphasize the common sense factor you can use as you analyze the data yourself.
1. Only follow the money of traders who trade large enough to MOVE the market. That will be relative to each market, of course. In fact, it occurs to me that maybe a generic formula could be created after studying diverse markets.
2. There are other large traders out there doing normal day-to-day transaction. Those are big money but not necessarily profit motivated. So you must look at where you anticipate turns to occur.
Jack, I think, made words to describe this called mode and pace.
It's unclear if that was intended to obfuscate the issue or not.
Sincerely,
Wayne
P.S. Please consider the efforts of my posts to primarily encourage you that success is possible and to tell you where to look rather than do your work for you for free.
Here is an annotated chart of the price (100 tic) and Volume (smart volume) of a forex chart.
I erased the volume and put a Channel Gaussian chart in its place. This shows the traverse volume in the channels of the chart.
I only showed the channel RTL's (in pink for clarity) and the traverse trades at Advanced Beginner level (in green for clarity).
As you may or may not see, there is a very interesting point that the two combined charts make.
So I put an NB on the chart to allow interested people, whether traders or non traders who program, to consider.
My view is that the two independent variables of trading an instrument come into play in parallel. The verniers, when skill is acquired, are used to attain efficiency and effectiveness.
I was unable to see the linkage among the signals on the original posted chart. That is why I annotated the chart. I wanted to see what was going on at a simple level of trading as the signal came down the line.
<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2081081" width=800>
I erased the volume and put a Channel Gaussian chart in its place. This shows the traverse volume in the channels of the chart.
I only showed the channel RTL's (in pink for clarity) and the traverse trades at Advanced Beginner level (in green for clarity).
As you may or may not see, there is a very interesting point that the two combined charts make.
So I put an NB on the chart to allow interested people, whether traders or non traders who program, to consider.
My view is that the two independent variables of trading an instrument come into play in parallel. The verniers, when skill is acquired, are used to attain efficiency and effectiveness.
I was unable to see the linkage among the signals on the original posted chart. That is why I annotated the chart. I wanted to see what was going on at a simple level of trading as the signal came down the line.
<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2081081" width=800>
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