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SBV Technical Analysis - Trading Volume with Confidence

Short-Term Trading System


Short-term traders who are willing to take on a higher amount of risk in exchange for a high return will be able to make excellent use of our trading system. All one needs is a little experience with our volume charts and indicators.

As in the case of long-term and mid-term traders, short-term traders can follow the money flow to determine the short-term sentiment in the stock market. Only a volume-based technical analysis can reveal whether the majority of the traders are selling in panic or buying in greed.

"Trade smart, not hard - follow the volume trail"

Depending on his personal trading style, a trader can select different timeframes and chart settings. If a trader is looking forward to making two or three trades a week, he/she may use a 60-day (1 bar = 1 hour) SBV (Selling/Buying Volume) Oscillator with a bar period = 20. A trader who wishes to trade more frequently may select shorter timeframes. For instance, a simple trading system (described in our charts examples) applied to 15-day chart (1 bar = 15 min) may generate 5-10 signals a week. However, by using even a shorter timeframe, he can generate even more trades. The formula below may give you an approximate trend lifespan, depending on the selected timeframe and indicator setting:

Expected Trend = [Bar Value] * [Indicator Bar Period Setting]

Example:

  • If you are looking at A 60-day SBV(20), you have a chart in which 1 bar = 1 hour and the SBV bar period is set at 20 bars. Further, 1 hour x 20 bars = 20 hours (about 3 trading sessions), you are trying to spot 3-day and longer trends.
  •  A 15-day SBV(16) chart has 1 bar = 15 min and the SBV Oscillator bar period setting = 16 bars. Further, the Expected Trend = 15 min x 16 bars = 240 minutes (4 hours). This can reveal 4-hour and longer trends.

By going to a shorter timeframe, a trading system will generate more trading signals. As a result, there is a possibility of generating more fake signals. To reduce the number of fake signals, we recommend that you use several technical indicators. In our case, we generally recommend the use of several timeframes: If a trader uses a 1-day chart to generate a signal, he/she may apply a similar technical analysis to a 5-day, 10-day or 15-day chart to define the parent trend and trade only those signals that agree with the longer timeframe trend.

For instance, if a 1-day chart generates a buy signal and the SBV on a 10-day chart is moving up (indicating an up-trend), a trader may consider opening a long trade. However, if a 1-day chart generates a buy signal and the SBV on a 10-day chart moves down (indicating a down trend), a trader may consider ignoring this signal. This strategy is known as "Do not trade against the trend"

Below you can see an example of a simple short-term trading system based on the SBV Oscillator.

Chart 1: Simple Trading System of using SBV Oscillator for mid-term trading. S&P 500
60-day chart (1 bar = 1 hour), SBV Oscillator bar period = 20 with signal line at 20%

SP 500 Chart

In the charts above you can see that the SBV Oscillator permits you to follow the short-term money flow and successfully invest in the stock market. The Simple Trading System has been applied to the 60-day 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 short-term trader will know when to buy and when to sell.

By for MarketVolume.com

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