Below, we list four simple trading rules 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:
(A) To initiate a long position:
Once the SBV indicator has dropped below minus 33% (the
SBV indicator will show red), wait for it to advance above that level and
then enter a long position;
Once the SBV indicator has advanced above plus 33% (the indicator will now show
green), enter a long position (if are not already long).
(B) To close a long position:
Take profits once the price / index has advanced to
your pre-determined profit target level OR when the SBV indicator advances
above plus 33% (the SBV indicator will show green) and then drops below that
level, whichever occurs first;
Take a loss if the price / index declines below your
pre-defined stop loss OR when the SBV indicator drops below minus 33% (the
SBV indicator will show red), whichever occurs first.
Chart 1:
Example of a long trade
using rules #1 and #3, and a critical level of 33% for the SBV
indicator. S&P 500 index. 15-day view. SBV(16,1)
The critical levels you select for the SBV indicator may have to be adjusted,
depending on your personal trading style and risk tolerance. You may select
these critical levels based on the timeframe you wish to analyze, as well as the
number of trades you wish to generate within that timeframe. In the examples
below, we used a critical level of 33% for the SBV indicator. Scrolling backward
on our charts (into historical data), you may notice that lower critical levels
generate more trades.
In the following example, we illustrate how Rule #4 was used to cut losses in a
long trade that was initiated with Rule #1. Rule #4 can serve not just to cut
losses when an index moves against your long position - but use to open a short
position at the same time.
Chart 2:
Example of a long trade
using rules #1 and #4, and a critical level of 33% for the SBV
indicator. S&P 500 index. 15-day view. SBV(16,1)
In the following example, we again selected 33% as the critical level for the
SBV indicator. The example illustrates how Rule #2 was used to trigger a long
trade.
Chart 3:
Example of a long trade
using rules #2 and #3, and a critical level of 33% for the SBV
indicator. S&P 500 index. 15-day view. SBV(16,1).
