Many traders, especially in the beginning, are uncertain about the chart timeframe that they should select for analysis and trading. The choice of timeframe depends completely on the personal trading style - how many trades a trader wishes to execute, how long he/she is willing to remain in a position, etc. The purpose of the examples below is to provide a comparison of a shorter timeframe chart and a longer timeframe chart.

The SBV chart example below is based on the 15-day SBV(16) and the 60-day SBV(20) S&P 500 charts. These SBV examples are a continuation of 15-day S&P 500 chart  example of March 27, 2009 and the 60-day S&P 500 chart example of February 20, 2009. The 60-day chart is a longer-term chart. The main difference is that a longer-term chart generates fewer trading signals than does a shorter-term chart (in our case a 15-day chart).

For instance, the 15-day chart has 1 bar = 15 min. SBV(16) covers 16 bars which are 16x15=240 minutes or 4 hours. From that you may assume that a 15-day SBV(16) chart attempts to cover 4-hour trends. Similarly, 30-day SBV(20) attempts to cover 10-hour trends and a 60-day SBV(20) chart attempts to cover 20-hour (approx. 3-day) trends. Two of the examples presented here confirm these calculations: The f15-day chart generated 12 signals in 2 weeks and the 60-day chart generated 9 signals in 2 months (stop-loss signals are not counted).

The same trading system has been applied to both charts:

1.  Once the SBV indicator declines below the negative signal level (the indicator will now show red), we enter a short position (if we are not already short);
2.  Once the SBV indicator advances above the 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 rallies above the positive signal level (the indicator will now show green), we enter a long position (if we are not already long);
4.  Once the SBV indicator declines below the 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 fell into negative territory and then begun to, but has not yet reached the signal line, close the short position when the SBV reaches positive territory, and remain in cash until a new buy signal appears. Do the opposite for a long position.

+17% in 2 weeks

(15-day 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)

+10% in 2 months

(60-day chart)

Chart 2. Relationship between the SBV oscillator and index reversal points. S&P 500 index. 60-day view. 1 bar = 1 hour. SBV(20)

In conclusion:

• A longer-term chart generates fewer signals than a shorter term chart. A trader who is unable to monitor the chart closely during trading hours may consider a longer-term chart.
• A longer-term chart can be considered to be more conservative, but could be less profitable. By selecting a chart with a shorter timeframe, a trader selects a riskier strategy in return for potentially greater profit.
•  With longer-term charts, a trader pays less in commissions (fewer trades).
•  A single signal generated on a longer-term chart may deliver a greater profit than a single signal generated on a chart that has a shorter timeframe.
•  The drawdown on a longer-term chart could be larger. Furthermore, stop-loss strategy on this chart could be more lax (less restrictive) than on a shorter-term chart.

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).

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