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Below, we outline a simple, four-step trading system based on our SBV indicator. The 33% level for the SBV indicator is used for illustrative purposes only in order to show how the system works. Depending on your personal trading style and risk tolerance, you may select a different, more appropriate critical level. The timeframe being analyzed, as well as the number of trades you would like to generate within that timeframe are two additional critical components that must be considered when determining critical SBV levels:

(A) To initiate a short position:

1. Once the SBV indicator has advanced above plus 33% (the SBV indicator will show green), wait for it to decline below that level and then enter a short position;
2. Once the SBV indicator declines below minus 33% (the indicator will now show red), enter a short position (if not already short);
   
   (B) To close a short position:
    
3. Take profits once the price / index has declined to your pre-determined profit target OR when the SBV indicator drops below minus 33% (the SBV indicator will show red) and then advances above that level, whichever occurs first;
4. Take a loss if the price / index rises above your pre-defined stop loss level OR when the SBV indicator advances above plus 33% (the SBV indicator will show green), whichever occurs first.

Chart 1:	Example of a short trade using rules #1 and #3, and a 33% critical level for the SBV indicator. S&P 500 index. 15-day view. SBV(16,1).

In the example below, we traded a shorter (smaller) timeframe and used 33% as the critical level for the SBV indicator. By scrolling back on our charts (to view the historical data), you may notice that the lower critical levels tend to work better for shorter timeframes. In this example, we illustrate how Rule #4 was applied in order to take a loss on a short trade opened in accordance with Rule #1. Rule #4 may not only serve to cut a loss when prices move against your short position, but also to open a long position simultaneously.

Chart 2:	Example of a short trade using rules #1 and #4, and a 33% critical level for the SBV indicator. S&P 500 index. 15-day view. SBV(16,1).

In the example below, we again used 33% as the critical SBV level. The example illustrates how Rule #2 triggered a short trade.

Chart 3:	Example of a short trade using rules #2 and #3, and a 33% critical level for the SBV indicator. S&P 500 index. 15-day view. SBV(16,1)

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