S&P 500:
An Example of a Trading
System using the technical analysis based on the SBV Oscillator
June 20, 2008
+8% (104 points) in 2 months
This week SBV chart example is a
continuation of previous
example on
June 13, 2008. In this week's example we
show 2 trading systems:
Trading System #1
|
Chart 1. Relationship between the SBV oscillator and
index reversal points. S&P 500 index. 60-day view. 1 bar = 1 hour. SBV(20) |
 |
It's
Simple and profitable
In our trading example, we applied the following
simple system which is based on our SBV indicator:
-
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);
-
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);
-
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);
-
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);
-
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.
-
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 |
06/17/08 |
rule #6 |
Cash |
1356 |
+6 |
|
Total: |
+104 |
In the
last week's example we have explained
the using of the trailing signal that would help to avoid a situation when the
SBV oscillator moves close to the signal line, yet does not hit it to generate
signal.
This example illustrates this rule on the practice when
on June 16, 2008 SBV oscillator did not hit a 33% signal line and started to
decline.
Trailing Signal Line Example:
To
generate "Long" signal - 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%.
To generate "Short"
signal - Once SBV
indicator started to decline after have been above plus 30%, we will enter a
short position when SBV declines for 10% from its most recent highest positive
level. If SBV advanced above plus 20% and started to decline without crossing
plus 30% we will enter a short position when SBV declines below minus 20%.
The simplified version of the rules above could be
a strategy of using multiple fixed signals levels:
Signal Level 1: If the SBV runs above plus 20% or drops below
minus 20% and reverses its trend without hitting 33% then use 20% as signal
line;
Signal Level 2: If the SBV runs above plus 33% or drops below
minus 33%, then use 33% as signal line.
In similar way signal levels could be build further.
It completely depends on a trading style and risk tolerance of a trader on
how to modify a trading system. For instance, one trader may select a
conservative trading system (with fixed 33% signal level) which now would be in
"Cash" position. On the other hand, another trader may prefer using a riskier
system (with multiple fixed signal levels) which now would be in in profitable
"Short" position. While the conservative system may miss some of the trends the
riskier system would catch all of the trends yet would generate more negative
trades.
Trading System #2
|
Chart 2. Relationship between the SBV oscillator and
index reversal points. S&P 500 index. 60-day view. 1 bar = 1 hour. SBV(20) |
 |
Signal Level 1: If the SBV runs above plus 20% or drops below
minus 20% and reverses its trend without hitting 33% then use 20% as signal
line;
Signal Level 2: If the SBV runs above plus 33% or drops below
minus 33%, then use 33% as signal line.
-
Once the SBV indicator declines below negative signal level (the
indicator will now show green), we enter a short position (if we are
not already short);
-
Once the SBV indicator advances above negative signal level (after having
been below that level), we will enter a long position (the indicator
still shows green);
-
Once the SBV indicator rallies above positive signal level (the indicator
will now show red), we enter a long position (if we are not already
long);
-
Once the SBV indicator declines below
positive signal level
(after having
been above that level), we will enter a short position (the indicator
still shows red);
-
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.
Table 2: 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 |
|
04/29/08 |
rule #4 |
Sell Short |
1390 |
04/30/08 |
rule #5 |
Cash |
1397 |
-7 |
|
05/05/08 |
rule #4 |
Sell Short |
1406 |
05/05/08 |
rule #3 |
Buy to Cover |
1408 |
-2 |
|
05/05/08 |
rule #3 |
Buy |
1408 |
05/06/08 |
rule #4 |
Sell |
1402 |
-6 |
|
05/06/08 |
rule #4 |
Sell Short |
1402 |
05/12/08 |
rule #2 |
Buy to Cover |
1397 |
+5 |
|
05/12/08 |
rule #2 |
Buy |
1397 |
05/14/08 |
rule #4 |
Sell |
1410 |
+13 |
|
05/14/08 |
rule #4 |
Sell Short |
1410 |
05/15/08 |
rule #3 |
Buy to Cover |
1421 |
-11 |
|
05/15/08 |
rule #3 |
Buy |
1421 |
05/20/08 |
rule #4 |
Sell |
1416 |
-5 |
|
05/20/08 |
rule #4 |
Sell Short |
1416 |
05/27/08 |
rule #2 |
Buy to Cover |
1379 |
+37 |
|
05/27/08 |
rule #2 |
Buy |
1379 |
06/02/08 |
rule #4 |
Sell |
1388 |
+9 |
|
06/02/08 |
rule #4 |
Sell Short |
1388 |
06/05/08 |
rule #2 |
Buy to Cover |
1391 |
-3 |
|
06/05/08 |
rule #2 |
Buy |
1391 |
06/06/08 |
rule #5 |
Cash |
1385 |
-6 |
|
06/12/08 |
rule #2 |
Buy |
1350 |
06/17/08 |
rule #4 |
Cash |
1356 |
+6 |
|
06/17/08 |
rule #4 |
Sell Short |
1356 |
06/20/08 |
|
|
1318 |
+38 |
|
Total: |
+113 |
As you may see, there is no significant difference in returns between the
system #1 and system #2. Yet, we believe that using additional technical
indicators may help to eliminate negative trades and substantially improve the
system #2.
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.
| Disclaimer: The chart
example is intended for educational purposes only and it does not
constitute trading advice, nor does it make or imply any market trend
predictions. |
More Examples:
|
Date |
Index |
Timeframe |
Number of Trades |
|
June 27, 2008 |
S&P 500 |
15-day |
4 "Long" and 6 "Short" trades |
|
June 27, 2008 |
S&P 500 |
60-day |
7 "Long" and 6 "Short" trades |
|
June 20, 2008 |
S&P 500 |
60-day |
4 "Long" and 2 "Short" trades |
|
June 13, 2008 |
S&P 500 |
60-day |
4 "Long" and 2 "Short" trades |
|
June 6, 2008 |
S&P 500 |
15-day |
7 "Long" and 10 "Short" trades |
|
May 30, 2008 |
S&P 500 |
60-day |
4 "Long" and 3 "Short" trades |
|
May 23, 2008 |
S&P 500 |
60-day |
3 "Long" and 4 "Short" trades |
|
May 16, 2008 |
S&P 500 |
60-day |
4 "Long" and 3 "Short" trades |
|
May 9, 2008 |
NASDAQ 100 |
10-day |
10 "Long" and 10 "Short" trades |
|
May 2, 2008 |
S&P 500 |
15-day |
7 "Long" and 9 "Short" trades |
|
April 25, 2008 |
S&P 500 |
60-day |
7 "Long" and 8 "Short" trades |
|
April 18, 2008 |
S&P 500 |
15-day |
3 "Long" and 3 "Short" trades |
|
April 11, 2008 |
S&P 500 |
15-day |
4 "Long" and 5 "Short" trades |
|
April 4, 2008 |
NASDAQ 100 |
5-day |
7 "Long" and
6 "Short" trades |
|
March 28, 2008 |
S&P 500 |
60-day |
6 "Long" and
7 "Short" trades |
|
March 20, 2008 |
S&P 500 |
5-day |
3 "Long" and
4 "Short" trades |
|
March 14, 2008 |
S&P 500 |
5-day |
6 "Long" and 5 "Short" trades |
|
March 7, 2008 |
S&P 500 |
60-day |
9 "Long" and 9 "Short" trades |
|
February 29, 2008 |
S&P 500 |
60-day |
8 "Long" and 8 "Short" trades |
|
February 22, 2008 |
S&P 500 |
15-day |
4 "Long" and 5 "Short" trades |
|
February 15, 2008 |
S&P 500 |
60-day |
7 "Long" and 7 "Short" trades |
|
February 8, 2008 |
S&P 500 |
60-day |
6 "Long" and 6 "Short" trades |
|
February 1, 2008 |
S&P 500 |
60-day |
5 "Long" and 5 "Short" trades |
|
January 25, 2008 |
S&P 500 |
60-day |
5 "Long" and 5 "Short" trades |
|
January 18, 2008 |
S&P 500 |
60-day |
4 "Long" and 5 "Short" trades |
|
January 11, 2008 |
S&P 500 |
60-day |
5 "Long" and 5 "Short" trades |
|
January 4, 2008 |
S&P 500 |
60-day |
4 "Long" and 5 "Short" trades |
|
