Learning SCT through automation..

F

frostengine

Background:

I have been developing automated trading systems for many years. Some have worked out great, others not so much. During this time I have attempted to learn SCT discretionary trading, however it still has not "clicked" for me. I do not know if this is due to SCT just not being a viable strategy or due to my own lack of understanding. I can see SCT has several positives such as at the very least it should help to keep you always on the right side of the market. Therefore, even if I can not be profitable in the same way Jack and Spyder can, perhaps I can use the base principals.

Goals:

I always learn best when I break things down to its smallest parts. To the level where I can automate it. Therefore, my aim in this thread will be to "break down" SCT into its smallest parts. With any luck we should be able to accomplish a few of the following.

#1 By breaking down SCT into its smallest moving parts, this thread may serve as another good "reference" for how to learn SCT.

#2 I will be using NinjaTrader for the coding. So with any luck we should be able to develop viable code snippets that can be used to annotate a lot of SCT which will make trading SCT easier for manual traders as well as helping those learning SCT to pick it up quicker.

#3 The primary and final goal I hope to accomplish will be full out automation of a profitable strategy based on SCT concepts.

I encourage all SCT experts and beginners alike to post here. Also, those of you who use NinjaTrader I am open to exchanging code snippets and coding ideas on how to accomplish building the various parts required to automate SCT.

The first piece of the puzzle to break down and explore will be the tape.
 
There seems to be a lot of information concerning how to build the tape.
For example this Image: http://www.elitetrader.com/vb/attachment.php?s=&postid=2009629

It shows a pretty exhaustive list of how the tape can be initially formed from the first few bars. No problems there. Its easy to form the initial tape.

Now the question becomes, where do we go from there?

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Case 1:
Lets assume we have the first example on that image. Where an uptrend tape is formed. So we have drawn those two trend lines. Now a third bar arrives. This bar has a higher high and a higher low than bar 2. What do we do?

Option 1:
We repeat the process and form a new tape using bar 2 and bar 3 which is formed in the same way as example 1 from the image.

Option 2: We extend the 2 trendlines we already formed out another bar by adding the Slope of the trendlines to the last point in our current trendlines.

<hr>
Case 2:
Lets assume again we have just formed the tape which is identical to example one in that image. Now bar 3 comes along and it has a higher low, however its high is < or = to the high of bar 2. What do we do now?

Option 1: We repeat the process and form a new tape using bar 2 and bar 3. However, this is technically an inside bar, so I do not believe this to be the correct course of action.

Option 2: We extend out the 2 trendlines we already formed for the tape.

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Case 3: Again assuming we have a setup like the fist 2 cases where we have drawn an uptrend tape. Bar 3 arrives and its high is > high of bar 2 and its low is < the low of bar 2. So this is an outside bar. What do we do with our tape now?

Option 1: We do nothing. Stop drawing our tape until we get more bars and thus can start a new tape.

Option 2: We just extend our existing tape out to this next bar by adding the slope to the trendlines.

<hr>
Case 4: Again assuming we have a setup like the first 3 cases where we have drawn an uptrend tape. Bar 3 arrives and its high < high of bar 2 and its low is < low of bar 2. What happens to our tape now?

Option 1: our uptrend tape has now ended, and we draw a new downtrend tape using bar 2 and bar 3

Option 2: Is there something else we can do?

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Case 5: Again assuming we have a setup like the first 4 cases where we have drawn an uptrend tape. Bar 3 arrives and like case 2 its an inside bar. HOWEVER this bar closed BELOW the RTL of our tape. What do we now?

Option 1: Since it closed below the RTL of our tape we now form a new down trend tape using bar 2 and bar 3.

Option 2: We change nothing, just extend our uptrend tape by adding the slope to the trendlines.

<hr>
These 5 cases I believe outlines just about every situation that may arise while drawing your tape. I focused only on the uptrend tapes, however the answers to each of these cases will apply in the same way to the down trend tapes.

Are my questions clear? Did I miss any cases or leave out an option that you can take for each case?

Can those of you who are experts on SCT or at least more familiar than myself reply back with what the correct option to take for each case would be? Thanks
 
Thanks, hopefully by breaking this method down into its smallest parts. Such as the way I approached the tape.. how I outlined every possible situation you can get into while drawing the tape and asking what is the correct action to take.

Hopefully some of the SCT experts chime in with the correct answers.. If so, then by the end of this thread we should have a pretty "mechanical" way of looking at SCT and a "guide" for exactly what action must be taken at all times....
 
Neoxx,

Do you know if that chart was annotated real time or after the fact... After spending a lot of time lately trying to automate this process, i'm noticing a lot of charts i'm comming across clearly had to have been annotated after the fact, or i'm just missing something subtle in how the rules change...

For instance looking at the chart you posted the first "teal colored" section that begins around 10:45... Point 2 of the red down trend channel is established around there.. however point 3 doesn't show up until 12:15...

However, if analyzing it bar by bar in real time, point 3 would have arrived at 11:20.. it would have been impossible to know that it was stuck in mostly lateral movement until 12:15..

things would not have been all that differnet had it used pt3 at 11:20... the strategy still functions nearly the same.. but from a coding standpoint trying to automate the process it makes a big difference

So am i missing something or was that chart annotated after the fact?

Thanks
 
Hi Frost,

First off, I thought your question related to tapes rather than channels?...

Now, I'll try to answer your question, but bear in mind I'm an SCT beginner.

The formation of a channel by traverses follows a sequence: Dominant - Non-dominant - Dominant.

The red channel is pointing down, hence that is the dominant direction. As you can see, the move from point 1 to 2 is characterised by increasing red volume. This nails part 1 of the sequence.

Now we expect a non-dominant move, to take us to point 3, and sure enough, it emerges in the form of the lateral move which is characterised by decreasing black volume. At 11.20, you know that we're still in the non-dominant part of the sequence because the volume is falling.

Now, the part of your question that I can't answer yet, is why 11.55 didn't mark point 3, as that is where we see a resumption of increasing red volume.

Hope that helped.
 
Neoxx,

You are correct my question was in fact aimed at drawing tapes. Will get to channels in future posts. Its just i'm trying to make heads or tails of what someone can actually see in real time.

I was just trying to figure out in real time how it was known to wait on point 3 past that point.

As far as the chart answering the question about the tape... its possible all of the cases are found in that chart, but it just appears too much of a cluster when i'm looking at it and hard to see for me to extract the concrete rules that corespond to the different cases I had inquired about.

Thanks for posting the chart though
 
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