S&P 500:
An Example of a Trading System using the SBV Oscillator

April 11, 2008

This week SBV chart example is based on the 15-day SBV(16) S&P 500 chart.

Chart 1. Relationship between the SBV oscillator and index reversal points. S&P 500 index. 15-day view. 1 bar = 15 min. SBV(16)
SP 500 Chart

It's Simple and profitable

In our trading example, we applied the following simple system which is based on our SBV indicator:

  1. Once the SBV indicator declines below minus 20% (the indicator will now show green), we enter a short position (if we are not already short);
  2. Once the SBV indicator advances above minus 20% (after having been below that level), we will enter a long position (the indicator still shows green);
  3. Once the SBV indicator rallies above plus 20% (the indicator will now show red), we enter a long position (if we are not already long);
  4. Once the SBV indicator declines below plus 20% (after having been above that level), we will enter a short position (the indicator still shows red);
  5. If the SBV dropped into negative territory and started to rise without hitting the signal line, close the short position when the SBV is back in the positive territory, and stay in cash until a new buy signal is generated. Vise versa for a long position.

Table 1: Trades based on the 5-rule (additional stop-loss rule) system.
Open Trades Closed Trades Profit
(points)
Time Motivation Trade Index Time Motivation Trade Index
03/31/08 rule #2 Buy 1322 03/31/08 rule #4 Sell 1322 0
03/31/08 rule #4 Sell Short 1322 04/01/08 rule #3 Buy to Cover 1350 -28
04/01/08 rule #3 Buy 1350 04/02/08 rule #4 Sell 1370 +20
04/02/08 rule #4 Sell Short 1370 04/03/08 rule #2 Buy to Cover 1366 +4
04/03/08 rule #2 Buy 1366 04/03/08 rule #4 Sell 1369 +3
04/03/08 rule #4 Sell Short 1369 04/04/08 rule #2 Buy to Cover 1369 0
04/04/08 rule #2 Buy 1369 04/04/08 rule #4 Sell 1371 +2
04/04/08 rule #4 Sell Short 1371 04/07/08 rule #2 Buy to Cover 1379 -8
04/07/08 rule #2 Buy 1379 04/07/08 rule #4 Sell 1376 -3
04/07/08 rule #4 Sell Short 1376 04/08/08 rule #2 Buy to Cover 1362 +14
04/08/08 rule #2 Buy 1362 04/08/08 rule #1 Sell 1365 +3
04/08/08 rule #1 Sell Short 1365 04/08/08 rule #2 Buy to Cover 1365 0
04/08/08 rule #2 Buy 1365 04/09/08 rule #1 Sell 1355 -10
04/09/08 rule #1 Sell Short 1355 04/09/08 rule #2 Buy to Cover 1355 0
04/09/08 rule #2 Buy 1355 04/10/08 rule #4 Sell 1365 +10
04/10/08 rule #4 Sell Short 1465       1333 +32

Total:  

+39

Note: The 20% level for the SBV indicator was determined in relation to the prevailing market conditions at the time the trading examples were selected. In order to establish the optimal critical levels for the SBV indicator, traders should consider the current market situation and review a chart history of prior volume surges including their magnitude (i.e., the level the SBV indicator reached).

Our charts are unique in that they give traders the option to choose specific chart settings that best fit their personal trading styles and risk tolerance. Traders can thus develop and test their own trading systems. On our charts, you can scroll back in history to test any system you created.

Disclaimer: The chart example is intended for educational purposes only – it does not constitute trading advice, nor does it make or imply any market trend predictions.

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