March 7, 2008

Another Move DOWN -
 SBV Oscillator did not miss it
+15% (222 points) on the S&P 500

This week SBV chart example is a continuation of previous example on February 29, 2008. In this week's example we use the same settings that were already used by showing the consistency of our trading system over the long period of time.

This week SBV chart example is based on the 60-day SBV(20) S&P 500 chart.

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:

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.

In our Market outlook on January 23,2008 we have mentioned:

"A note for those who use 60-day SBV(20) simple trading system: it is recommended to reduce the negative level from minus 20% to minus 50-60% after such a prolonged Selling volume accumulation. An additional rule that may increase an efficiency of the system should now include - 'If you see the SBV below minus 20% for more then 8-10 session in a row, then lower the signal line from minus 20 to minus 50-60%"

This is one of the ways to improve the system. When the market is heading in one direction for a prolonged period of time and we start to see the Selling or Buying volume accumulation growing to big sizes (big red or green SBV areas) it is logical to expect a sharper and a stronger reversal than usual. In this case it could be a little late to close a position when the SBV crosses over the 20% level and for a similar situation there could be an additional rule included:

Rule #6: If you see the SBV below minus 20% or above plus 20% for more then 8-10 session in a row then lower the signal line from minus 20 to minus 40-60% or raise from plus 20% to plus 40-60% respectively

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
12/27/07	rule #4	Sell Short	1483	01/10/08	rule #2	Buy to Cover	1400	+83
01/10/08	rule #2	Buy	1400	01/11/08	rule #5	Cash	1406	+6
01/15/08	rule #4	Sell Short	1391	01/24/08	rule #6	Buy to Cover	1341	+50
01/24/08	rule #6	Buy	1341	01/25/08	rule #4	Sell	1332	-9
01/25/08	rule #4	Sell Short	1332	01/28/08	rule #3	Buy to Cover	1340	-8
01/28/08	rule #3	Buy	1340	01/29/08	rule #4	Sell	1362	+22
01/29/08	rule #4	Sell Short	1362	01/30/08	rule #3	Buy to Cover	1359	+2
01/30/08	rule #3	Buy	1359	02/05/08	rule #4	Sell	1347	-12
02/05/08	rule #4	Sell Short	1347	02/11/08	rule#2	Buy to Cover	1340	+7
02/11/08	rule #2	Buy	1340	02/12/08	rule #5	Cash	1348	+8
02/14/08	rule #4	Sell Short	1355	02/15/08	rule#2	Buy to Cover	1342	+13
02/15/08	rule #2	Buy	1342	02/19/08	rule #1	Sell	1348	+6
02/19/08	rule #1	Sell Short	1348	02/20/08	rule #2	Buy to Cover	1352	-4
02/20/08	rule #2	Buy	1352	02/21/08	rule #5	Cash	1343	-9
02/25/08	rule #2	Buy	1358	02/28/08	rule#4	Sell	1372	+14
02/28/08	rule #4	Sell Short	1372	03/05/08	rule #2	Buy	1327	+45
03/05/08	rule #2	Buy	1327	03/06/08	rule #1	Sell	1314	-13
03/06/08	rule #1	Sell Short	1314				1293	+21
Total:								+222

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.

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