An Example of a Trading
System based on the SBV Oscillator
September 19, 2008
SBV
signaled the bottom of the crash
In our Market outlook of September 17, 2008 we wrote:
"We will repeat for those who use 60-day the
SBV(20) simple trading system
what we mentioned on January 23rd of 2008: we recommend that you lower the
negative level from minus 20% to minus 60-70% after such a strong Selling volume
accumulation. There is no need to wait until the SBV runs to the minus 30-20%
level for confirmation of the recovery."
This is one way to improve the system. When the market is heading in one
direction for a prolonged period of time and we begin to see the accumulation of
Selling or Buying volume grow very significantly, it is reasonable to expect a
sharper and stronger reversal than usual. In this case, it could be too late to
close a position when the SBV has crossed the 20% level.
This helped to spot the exact bottom of the crash
in January and
March of 2008
as well as a few days ago.
+10% in last week on crash and
recovery
Chart 1. Relationship between the SBV oscillator and
index reversal points. S&P 500 index. 60-day view. 1 bar = 1 hour. SBV(20)
Signal Level 1: If the SBV runs above plus 20% or falls below
minus 20% and reverses its trend without reaching 33%, use 20% as the signal
line.
Signal Level 2: If the SBV runs above plus 33% or falls below
minus 33%, use 33% as the signal line.
Once the SBV indicator has
declined below a negative signal level (the indicator will now show red), we
enter a short position (if we are not already short);
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);
Once the SBV indicator
rallies above a positive signal level (the indicator will now show green),
we enter a long position (if we are not already long);
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);
Additional Stop Loss
Rule - If the SBV had fallen into negative territory and has begun
to rise without, but has not yet reached the signal line, close the short
position when the SBV is back in positive territory, and stay in cash until
a new buy signal appears. Do the opposite 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
07/24/08
rule #4
Sell Short
1269
07/29/08
rule #2
Buy to Cover
1253
+16
07/29/08
rule #2
Buy
1253
08/01/08
rule #4
Sell
1261
+8
08/01/08
rule #4
Sell Short
1261
08/05/08
rule #2
Buy to Cover
1270
-9
08/05/08
rule #2
Buy
1270
08/07/08
rule #4
Sell
1270
0
08/07/08
rule #4
Sell Short
1270
08/15/08
rule #5
Cash
1294
-24
08/18/08
rule #4
Sell Short
1280
08/21/08
rule #2
Buy to Cover
1273
+7
08/21/08
rule #2
Buy
1273
08/25/08
rule #4
Sell
1284
+11
08/25/08
rule #4
Sell Short
1284
08/28/08
rule #5
Cash
1288
-4
08/29/08
rule #4
Sell Short
1291
09/08/08
rule #4
Buy to Cover
1255
+36
09/08/08
rule #2
Buy
1255
09/11/08
rule #5
Cash
1224
-31
09/12/08
rule #2
Buy
1243
09/15/08
rule #4
Sell
1226
-17
09/15/08
rule #4
Sell Short
1226
09/18/08
rule #2
Buy to Cover
1180
+46
09/18/08
rule #2
Buy
1180
09/19/08
1255
+75
Total:
+114
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).
Our charts are unique in that they give traders the opportunity to
choose the specific chart settings that best fit their personal trading styles
and risk tolerances. Traders can thus develop and test their own trading
systems. On our charts, you can scroll back in history to test any system that
you have created.
Disclaimer:
The chart example is intended for educational purposes only and does not
constitute trading advice or make or imply any market trend prediction.
