In the previous 60-day SBV chart example we have explained the using of the trailing stop rule based on the SBV indicator:

Trailing Stop Rule Example #1: If the SBV advanced above 20% and started to decline without crossing 33% we close the long position and open short position if the SBV declines below 20%

or

Trailing Stop Rule Example #2: Once SBV declined for more then 10% and we are in long, we close a long position and and stay in cash until a new signal is generated.

This week SBV example shows the using of this rule on June 2, 2008.

We always stated that the trading system we describe in our examples is very simple and there is always a room to improve it. If you follow our examples you may see that even such simple and straightforward system delivers profit. By going through the history of our examples you may find description of different rules that could be embedded into the system in order to make it more conservative, or to make it to generate more signals, or to make it to react faster on strong signals, etc.

In this week example we would like to introduce another rule that could be used in our system. We have already mentioned the using of the "trailing stop" - the same principle could be used to generate signals. In our examples the rules #2 and #4 are used to generate "Long" and "Short" signals based on the fixed signal line (33% in our current example). However, this rule could be modified into a rule which uses a trailing signal line:

Rule #2 Example: Once SBV indicator started to advance after have been below minus 30%, we will enter a long position when SBV advances for 10% from its most recent lowest negative level. If SBV declined below minus 20% and started to advance without crossing minus 30% we will enter a long position when SBV advances above minus 20%.

Foe example, according to the rule above:

• If SBV dropped to minus 75% and started to advance we will enter a long position when SBV advances above minus 65%;

• If SBV dropped to minus 40% and started to advance we will enter a long position when SBV advances above minus 30%;

• If SBV dropped to minus 25% and started to advance we will enter a long position when SBV advances above minus 20%.

As you may see the rule #2 above uses trailing principle to generate a "Long" signal. A similar rule could be build instead of the rule #4 to generate a "Short" signal.

Note, all numbers (10% trailing, 33% and 20% signals) in our examples are subjective and should be tested before use.

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 33% (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 33% (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 33% (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 33% (after having been above that level), we will enter a short position (the indicator still shows red);
5. Additional Stop Loss Rule - 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.
6. Additional Trailing Stop Rule - If we are in long position and SBV declined for more then 10%, we close a long position and and stay in cash until a new signal is generated. If we are in short position and SBV advanced for more then 10%, we close a short position and and stay in cash until a new signal is generated.

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
04/15/08	rule #2	Buy	1334	04/21/08	rule #4	Sell	1384	+50
04/21/08	rule #4	Sell Short	1384	04/24/08	rule #5	Cash	1389	-5
05/12/08	rule #2	Buy	1397	05/14/08	rule #4	Sell	1410	+13
05/14/08	rule #4	Sell Short	1410	05/27/08	rule #2	Buy to Cover	1379	+31
05/27/08	rule #2	Buy	1379	06/02/08	rule #6	Cash	1388	+9
06/12/08	rule #2	Buy	1350	06/13/08			1360	+10
Total:								+108

Note: The 33% 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.