A Simple SBV Trading System for Going Short
Below, we outline a simple, four-step trading
system based on our SBV indicator. The 66% level for the SBV indicator is
used for illustrative purposes only to show how the system works. Depending
on your personal trading style and risk tolerance, you may select a different,
more appropriate critical level. The timeframe being analyzed, as well as the
number of trades you would like to generate within that timeframe are two
further critical components that must be considered when determining critical
SBV levels:
(A) To initiate a short position:
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Once the SBV indicator has advanced above plus
66% (the SBV indicator will show red), wait for it to decline below that
level, then enter a short position;
-
Once the SBV indicator declines below minus
66% (the indicator will now show green), enter a short position (if not
already short);
(B) To close a short position:
-
Take profits once the price / index has
declined to your pre-determined profit target OR when the SBV indicator
drops below minus 66% (the SBV indicator will show green) and then advances
above that level, whichever occurs first;
-
Take a loss if the price / index rises above
your pre-defined stop loss level OR when the SBV indicator advances above
plus 66% (the SBV indicator will show red), whichever occurs first.
| Chart 1: |
Example of a short trade
using rules #1, #3, and a 66% critical level for the SBV indicator.
S&P 500 index. 30-day view. 1-day VMA. |
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In the example below, we traded a shorter (smaller) timeframe and used 33% as
the critical level for the SBV indicator. By scrolling back on our charts (to
view historical data), you may notice that lower critical levels tend to work
better for shorter timeframes. In this example, we illustrate how rule #4 was
applied in order to take a loss on a short trade opened in accordance with rule
#1. Rule #4 may not only serve to cut a loss when prices move against your short
position - but also to open a long position simultaneously.
| Chart 2: |
Example of a short trade
using rules #1, #4, and a 33% critical level for the SBV indicator.
NASDAQ 100 index. 5-day view. 120-minute VMA. |
 |
In the example below, we again used 33% as the critical SBV level. The
example illustrates how rule #2 triggered us into a short trade.
| Chart 3: |
Example of a short trade
using rules #2, #3, and a 33% critical level for the SBV indicator.
NASDAQ 100 index. 5-day view. 120-minute VMA. |
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