1 point on S&P 500 = $50 on 1 E-mini S&P 500 futures contract

40 points on S&P 500 = $20,000 on 10 E-mini S&P 500 contracts 

This week's SBV chart example is a continuation of the previous week's example and is based on the 5-day SBV(20) S&P 500 chart.

On 5-day and smaller timeframes majority of signals are generated during the trading hours. In this case some of the traders may prefer to hold overnight position while the other traders may chose to close all opened positions by the end of a trading session. Last week we compared these two ways of trading SBV oscillator: by holding overnight position and by closing a trade by the end of a session. In this week's chart example we continued using the SBV simple trading system that is adjusted to close position by the end of a trading session.

Chart 1. The simple trading system.
S&P 500 index. 5-day view. 1 bar = 5 minutes. SBV(20)

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 has fallen below a minus 20% (the indicator will now show red), we will enter a short position (if we are not already short);
2. Once the SBV indicator has advanced above a minus 20% (after having been below that level), we will enter a long position (the indicator still shows red);
3. Once the SBV indicator has rallied above a plus 20% (the indicator will now show green), we will enter a long position (if we are not already long);
4.  Once the SBV indicator has fallen below a Plus 20% (after having been above that level), we will enter a short position (the indicator still shows green);
5.  Additional Stop Loss Rule - If the SBV had dropped into negative territory and has begun to rise without having hit the signal line, close the short position when the SBV is back in positive territory, and stay in cash until a new signal appears.
   
   Do the opposite for a long position: if the SBV had moved into positive territory and has begun to decline without having hit the positive signal line, close the long position when the SBV is back in negative territory, and stay in cash until a new signal appears.

In case when a trader prefers closing all signals by the end of a trading session the simple trading system should be modified to provide rules that would guide what to do at the market open and what to do at the market close. Below we show a few possible rules that could be added to the simple trading system above that uses plus 20% and minus 20% as signal lines.

After the Market opens:

6. If after the market opens the SBV indicator is above plus 20% and moves up, we will open a long position;
7. If after the market opens the SBV indicator is below minus 20% and moves down, we will open a short position;
8. In all other cases we will wait when a new signal is generated.

Before the Market closes:

10. If a signal is generated when it is less than one hour left to the closing bell (after 15:00) then this signal is used to close previously opened position only. New position is not opened within the last hour of trading;
11. If no signals were generated within the last hour of trading then previously opened position is closed at the end of the trading session.

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.