+20% on the S&P 500
Use SBV to see when to Sell

This week's SBV chart example is based on the 60-day SBV(20) S&P 500 chart. This chart example is a continuation of previous example on July 16, 2010.

Chart 1. Relationship between the SBV Oscillator and
index reversal points. S&P 500 index. 60-day view. 1 bar = 60 min. SBV(20)

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

1. Once the SBV indicator has fallen below a negative signal level (the indicator will now show red), we will enter a short position(if we are not already short);
2. Once the SBV indicator has advanced above a negative signal level (after having been below that level), we will enter a long position (the indicator still shows red);
3. Once the SBV indicator has rallied above a positive signal level (the indicator will now show green), we will enter a long position (if we are not already long);
4. Once the SBV indicator has fallen below a positive signal level (after having been above that level), we will enter a short position (the indicator still shows green);
5. Additional Stop Loss Rule - If the SBV had dropped into negative territory and has begun to rise without having hit the signal line, close the short position when the SBV is back in positive territory, and stay in cash until a new signal appears.
   
   Do the opposite for a long position: if the SBV had moved into positive territory and has begun to decline without having hit the positive signal line, close the long position when the SBV is back in negative territory, and stay in cash until a new signal appears.

Detailed system description with explanation of used rules could be found in our "SBV Trading System" tutorial.

Adding a Stop-Loss to the system may substantially reduce losses and, in some cases, even double the summary profit.

Note: The 20% level for the SBV indicator was determined in relation to the prevailing market conditions at the time that 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 the history of prior volume surges, including their magnitude (i.e., the level that the SBV indicator reached).