The appearance of significant volume surges indicates
that a large number of contracts are changing hands. As a rule, these volume
surges reflect a change in market sentiment; they frequently precede at least a
short-term price reversal.
Our SBV (Selling-Buying Volume) indicator helps you
define critical levels at which a trend reversal is most likely to occur.
Over a specified period, the SBV indicator calculates the difference between the
volume production during a price (index) advance (“selling volume”) and the
volume that is generated as the price (index) moves lower (“buying volume”). By
applying it to our modulated combined volume charts, we make this indicator more
precise and easier to use. Modulated volume charts allow users to analyze and
compare the SBV indicator over an entire session, making note of those volume
surges that are not part of typical diurnal variations.
The SBV indicator reflects the magnitude and duration
of "buying surges" (which occur as the price / index moves down) and of “selling
surges” (which are created as the price / index moves up). For instance, when
the SBV indicator hits levels exceeding +66%, it reveals that selling volume has
exceeded buying volume by more than 66% (the SBV indicator will be red). The
opposite is true when the SBV indicator drops below a level of -66% (in this
case, the SBV indicator will be green). In this particular example, buying
volume would exceed selling volume by more than 66%.
A very simple trading system can be built using the SBV
indicator:
- Sell on selling surges and buy on buying surges.
Keeping their personal trading styles in mind, traders
can set their own critical SBV levels which serve as triggers to initiate and
close trades.
Research using historical SBV data shows that a trading
system based on the SBV indicator delivers much better returns when trading
decisions are not triggered by the index simply reaching the actual critical SBV
threshold but rather by reaching it, trading beyond it, and then retracing back
to that level.
More to read:
A Simple Trading System
