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Many mid-term conservative traders prefer to make 2-5 conservative trades a year by using a trading system that will protect their portfolios against market crashes, but gives them the ability to participate in the strong up- and down-trends. For conservative trading we suggest trading either QQQ shares for the NASDAQ 100 or SPY shares for the S&P 500, although there are many more options, including other ETFs, index tracking funds and individual stocks.

We believe strongly that index analysis is essential for any mid-term investor. If the index analysis reveals that we are in a recession, crash or mid-term down-trend, your stock will follow the general market decline defined by the indexes, no matter what you trade and how good it is. On the other hand, when the index analysis indicates an up-trend, even bad stocks do well, in the majority of cases. Bear in mind when applying technical analysis to your stock that, if you see it predict up-trend in the mid-term although the index technical analysis is predicting a decline, the probability that you will profit on this stock's advance is very low.

As in the case with long-term investors, mid-term traders must follow the money flow and determine whether money is entering or leaving the stock market. Only volume-based technical analysis can provide you with a complete picture of where the money goes in the mid-term.

"Volume helps you navigate the markets"

By applying SBV Oscillator (Selling/Buying Volume Oscillator) to the 3-year (1 bar = 3 days) charts of indexes and exchanges, you can receive a clear picture of when to buy and when to sell in the mid-term. The trading system for mid-term traders is very simple. However, for more conservative trading, we recommend that you have stronger protection against losses than do long-term traders. A Long-Term Simple Trading System has Rules #1 and #3 to prevent a situation in which a signal is generated, although the market does not follow. For a Mid-Term Simple Trading System, an additional rule can be added:

Rule #5: If you are short and the SBV dropped into negative territory, but has begun to rise without reaching the signal line, close the short position when the SBV is back in positive territory. Do the opposite for a long position.

Mid- and Long-term trading systems are based on daily data. Consequently, there is no need to monitor charts during the trading session. While a long-term trader may take a look at the charts once a week, we recommend that mid-term traders check charts daily after the market close.

Below is an example of a simple mid-term trading system based on the SBV Oscillator.

Chart 1: Simple Trading System using the SBV Oscillator for mid-term trading. S&P 500
3-year chart (1 bar = 3 days), SBV Oscillator bar period = 20 with signal line at 20%
2003 - 2006

Chart 2: Simple Trading System using the SBV Oscillator for mid-term trading. S&P 500
3-year chart (1 bar = 3 days), SBV Oscillator bar period = 20 with signal line at 20%
2006 - 2007

Chart 3: Simple Trading System using the SBV Oscillator for mid-term trading. S&P 500
3-year chart (1 bar = 3 days), SBV Oscillator bar period = 20 with signal line at 20%
2007 - 2009

In the charts above you can see that the SBV Oscillator permits you to follow the money flow and successfully invest in the stock market. The Simple Trading System has been applied to the 3-year SBV(20) chart:

1. Once the SBV indicator declines 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 advances 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 rallies 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 declines below a positive signal level (after having been above that level), we will enter a short position (the indicator still shows green);
5.  Stop-loss rule: If you are short and the SBV dropped into negative territory and then began to rise without reaching the signal line, close the short position when the SBV is back in positive territory. Do the opposite for a long position.

By following these simple five rules, a conservative, mid-term trader will know when to buy and when to sell.

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