S&P 500:
An Example of a Trading System using the SBV Oscillator

April 25, 2008

+18% in 2 months

This week SBV chart example is based on the 60-day SBV(20) S&P 500 chart. In opposite to our previous 60-day chart examples we have used 33% signal line.

We have been tracking the 60-day SBV chart since September 2006 (click here to the the complete history). You may notice that until April 2007 we used 33% signal line and then we switched to 20% signal line because of the better result delivered by the 20% signal setting.

This week we have decided to base the 60-day SBV chart example on 33% signal line and by covering period from beginning of February 2008 until now give you ability to compare the results delivered  by using 33% signal line with the results of using 20% line in our chart examples on March 28, 2008 and on March 7, 2008.

It could be premature to make a conclusion that we are entering the market stage when 33% signal line could produce better results, yet, we may see that over the last 3 months the 60-day SBV(20) chart would delivered better results with 33% signal line. Keep in mind that SBV oscillator with higher signal line generates fewer signals.

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

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 33% (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 33% (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 33% (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 33% (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.

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
02/04/08 rule #4 Sell Short 1385 02/08/08 rule #2 Buy to Cover 1337 +48
02/08/08 rule #2 Buy 1337 02/12/08 rule #5 Cash 1349 +12
02/14/08 rule #4 Sell Short 1359 02/21/08 rule #5 Cash 1360 -1
02/28/08 rule #4 Sell Short 1290 03/05/08 rule #2 Buy to Cover 1328 +39
03/05/08 rule #2 Buy 1315 03/07/08 rule #1 Sell 1296 -32
03/07/08 rule #1 Sell Short 1296 03/11/08 rule #2 Buy to Cover 1314 -18
03/11/08 rule #2 Buy 1314 03/14/08 rule #4 Sell 1295 -19
03/14/08 rule #4 Sell Short 1295 03/18/08 rule #2 Buy to Cover 1303 -8
03/18/08 rule #2 Buy 1303 03/24/08 rule #4 Sell 1358 +55
03/24/08 rule #4 Sell Short 1358 03/31/08 rule #2 Buy to Cover 1321 +37
03/31/08 rule #2 Buy 1321 04/04/08 rule #4 Sell 1374 +53
04/04/08 rule #4 Sell Short 1374 04/15/08 rule #2 Buy to Cover 1334 +40
04/15/08 rule #2 Buy 1334 04/21/08 rule #4 Sell 1384 +50
04/21/08 rule #4 Sell Short 1384 04/24/08 rule #5 Cash 1389 -5

Total:  

+251

We did not use the rule #6 which was mentioned on our examples on March 28, 2008 and January 25, 2008. Yet, this rule would increase the return by from 251 to 318 points (the buy signal on 3/11/2008 would be generated at 1290 level).

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

Note: The 33% 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.
Disclaimer: The chart example is intended for educational purposes only and it does not constitute trading advice, nor does it make or imply any market trend predictions.

 More Examples: