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

June 6, 2008

+47 points on the S&P 500

1 point on S&P 500 = $50 on 1 SP E-mini contract
 10 point on S&P 500 = $1 on 1 SPY stock
 10 points on S&P 500 is about 10-15% on SPY options

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
05/22/08 rule #4 Sell Short 1393 05/23/08 rule #5 Cash 1387 +6
05/23/08 rule #2 Buy 1379 05/23/08 rule #5 Cash 1376 -3
05/27/08 rule #4 Sell Short 1377 05/27/08 rule #5 Cash 1376 +1
05/28/08 rule #4 Sell Short 1382 04/23/08 rule #2 Buy to Cover 1385 -3
05/28/08 rule #2 Buy 1385 05/28/08 rule #1 Sell 1383 -2
05/28/08 rule #1 Sell Short 1383 05/28/08 rule #2 Buy to Cover 1383 0
05/28/08 rule #2 Buy 1383 05/29/08 rule #4 Sell 1398 +15
05/29/08 rule #4 Sell Short 1398 05/30/08 rule #5 Cash 1402 -4
05/30/08 rule #4 Sell Short 1403 06/02/08 rule #2 Buy to Cover 1381 +22
06/02/08 rule #2 Buy 1381 06/03/08 rule #4 Sell 1381 0
06/03/08 rule #4 Sell Short 1381 06/04/08 rule #2 Buy to Cover 1381 0
06/04/08 rule #2 Buy 1381 06/04/08 rule #4 Sell 1384 +3
06/04/08 rule #4 Sell Short 1384 06/05/08 rule #2 Buy to Cover 1392 -8
06/05/08 rule #2 Buy 1392 06/05/08 rule #4 Sell 1397 +3
06/05/08 rule #4 Sell Short 1397 06/05/08 rule #3 Buy to Cover 1401 -4
06/05/08 rule #3 Buy 1401 06/06/08 rule #4 Sell 1391 -10
06/06/08 rule #4 Sell Short 1391 06/06/08     1360 +31

Total:  

+47

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.

 More Examples: