Dow Jones Industrials (DJI):
An Example of a Trading
System using the SBV Oscillator
October 10, 2008
DJI SBV beats stock market crash
+20% on the DJI in a week
This week SBV chart example is based on the 30-day SBV(20)
DJI (Dow Jones Industrials) chart.
This week SBV chart example is a
continuation of previous
example on
October 3, 2008. In this week's
example we use the same settings that were already used by showing the
consistency of our trading system over the long period
of time.
Since July 24, 2008 we have been paying close attention to Dow Jones Industrial 30-day
SBV(20) - the result exceed all our expectation.
Chart 1. Relationship between the SBV oscillator and
index reversal points. DJI index.
30-day view. 1 bar = 30 min. SBV(20)
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It's
Simple and profitable
In our trading example, we applied the following
simple system which is based on our SBV indicator:
- Once the SBV indicator declines below minus 20% (the
indicator will now show red), we enter a short position (if we are
not already short);
- Once the SBV indicator advances above minus 20% (after having
been below that level), we will enter a long position (the indicator
still shows red);
- Once the SBV indicator rallies above plus 20% (the indicator
will now show green), we enter a long position (if we are not already
long);
- Once the SBV indicator declines below plus 20% (after having
been above that level), we will enter a short position (the indicator
still shows green);
- 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.
Improve the system by cutting
losses:
In spite 358 points loss on 9/18/2008 the simple trading system has
generated more than +8% profit on DJI over the last month.
It could be
recommended adopting additional stop-loss rules that match personal risk tolerance.
The system presented below is very simple. Before using it in actual trading, we
recommend that you fine-tune the system to best suit your personal trading
preferences and risk tolerance. For instance, you may
create additional rules to take a loss if prices move 150 points against your
position. In our example, an adherence to this rule would have reduced our
losses by 228 points.
Improve the system by protecting profit
We stated in our daily market
outlook "As we already mentioned in January 2008 and
in September 2008, when the SBV hit extremely low levels it is recommended to
reduce the negative level from minus 20% to minus 60-70% after such strong
bearish volume accumulation. This is for those who use our 60-day SBV(20) simple
trading system. The reason is that it could be enough to confirm a recovery. The
odds for a continuation of this afternoon's rally are increasing." -
the same principles could be applied to the 30-day chart. When we have extremely
oversold market defined by big bearish SBV accumulation (a lot of red) and when
SBV hitting extremely low negative levels it could be wrong to wait until SBV
rises to minus 20% to close position. Waiting when minus 20% levels is hit could
wipe out major part of the profit.
We represent our system in
simple way in order to deliver the main points of using the SBV Oscillator. Yet
it does not mean the the system is perfect and there is no room for improvement.
Every trader has to adjust this system to the personal trading style and risk
tolerance and develop some rules that not only help to cut losses but which help
to protect profit as well.
In the current market condition
when the SBV hit minus 100% level and started to advance a trader may set stop
when he/she is willing to pocket the profit. As an example a riskier trader may
close the short and open a long position when SBV rises to minus 70-60% (after
such strong oversold levels). On the other hand more conservative trader may
close the short position when SBV rises to minus 70-60% and stay in cash until
SBV climbs to minus 20% and only then open a long position. Another trader may
close the short position when SBV rises from minus 100% to minus 80% and open a
long position when SBV is above minus 50%.
As you see different implementation of rules could be set depending on your
personal trading style, how you fill about market and what other technical
indicators tell you. The main point is that the rising SBV indicates
Bullish sentiment and after such low negative SBV when the market is strongly
oversold and is extremely volatile (DJI can make 5% up or down very easy) it
could be too late to close the short position when the SBV reach minus 20%.
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 |
|
09/15/08 |
rule #4 |
Sell Short |
11131 |
09/17/08 |
rule #2 |
Buy to Cover |
10909 |
+222 |
|
09/17/08 |
rule #2 |
Buy |
10909 |
09/17/08 |
rule #4 |
Sell |
10825 |
-84 |
|
09/17/08 |
rule #4 |
Sell Short |
10825 |
09/17/08 |
rule #2 |
Buy to Cover |
10721 |
+104 |
|
09/17/08 |
rule #3 |
Buy |
10721 |
09/17/08 |
rule #4 |
Sell |
10602 |
-119 |
|
09/17/08 |
rule #4 |
Sell Short |
10602 |
09/18/08 |
rule #2 |
Buy to Cover |
10960 |
-358 |
|
09/18/08 |
rule #2 |
Buy |
10960 |
09/22/08 |
rule #4 |
Sell |
11197 |
+237 |
|
09/22/08 |
rule #4 |
Sell Short |
11197 |
09/25/08 |
rule #2 |
Buy to Cover |
11016 |
+181 |
|
09/25/08 |
rule #2 |
Buy |
11016 |
09/26/08 |
rule #4 |
Sell |
10943 |
-73 |
|
09/26/08 |
rule #4 |
Sell Short |
10943 |
09/30/08 |
rule #2 |
Buy to Cover |
10767 |
+176 |
|
09/30/08 |
rule #2 |
Buy |
10767 |
10/02/08 |
rule #4 |
Sell |
10597 |
-170 |
|
10/02/08 |
rule #4 |
Sell Short |
10597 |
10/09/08 |
|
|
8451 |
+2146 |
|
Total:
|
+2262
(+20.3%) |
Note:
The 20% 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 - it does not
constitute trading advice, nor does it make or imply any market trend
predictions. |
More Examples:
|
Date |
Index |
Timeframe |
Result |
Number of Trades |
|
Oct. 3, 2008 |
DJI |
30-day |
+2,262 points (+20%) |
5 "Long"
and 6 "Short" |
|
Oct. 3, 2008 |
DJI |
30-day |
+958 points (+8.3%) |
8 "Long"
and 9 "Short" |
|
Sept. 26, 2008 |
S&P 500 |
60-day |
+74 points (+5.8%) |
7 "Long"
and 7 "Short" |
|
Sept. 19, 2008 |
S&P 500 |
60-day |
+114 points (+9.0%) |
6 "Long"
and 7 "Short" |
|
Sept. 12, 2008 |
DJI |
30-day |
+1,232
points (+11%) |
5 "Long" and 5 "Short" |
|
Sept. 5, 2008 |
DJI |
30-day |
+734 points (+6.3%) |
5 "Long"
and 5 "Short" |
|
Aug. 29, 2008 |
DJI |
30-day |
+600 points (+5.2%) |
6 "Long"
and 6 "Short" |
|
Aug. 22, 2008 |
DJI |
30-day |
+995 points (+8.7%) |
5 "Long"
and 5 "Short" |
|
Aug. 15, 2008 |
S&P 500 |
15-day |
+41 points (+3.2%) |
7 "Long"
and 8 "Short" |
|
Aug. 8, 2008 |
S&P 500 |
15-day |
+44 points (+3.5%) |
6 "Long"
and 7 "Short" |
|
Aug. 1, 2008 |
S&P 500 |
15-day |
+45 points (+3.6%) |
4 "Long"
and 8 "Short" |
|
July 25, 2008 |
S&P 500 |
15-day |
+28 points (+2.2%) |
1 "Long"
and 3 "Short" |
|
July 18, 2008 |
S&P 500 |
60-day |
+7 points (+0.0%) |
9 "Long"
and 5 "Short" |
|
July 11, 2008 |
S&P 500 |
15-day |
+103 points (+7.8%) |
4 "Long"
and 6 "Short" |
|
July 3, 2008 |
S&P 500 |
15-day |
+69 points (+5.2%) |
4 "Long"
and 6 "Short" |
|
June 27, 2008 |
S&P 500 |
60-day |
+62 points (+4.4%) |
7 "Long"
and 6 "Short" |
|
June 20, 2008 |
S&P 500 |
60-day |
+113 points (+8.5%) |
4 "Long"
and 2 "Short" |
|
June 13, 2008 |
S&P 500 |
60-day |
+108 points (+8.1%) |
4 "Long"
and 2 "Short" |
|
June 6, 2008 |
S&P 500 |
15-day |
+47 points (+3.4%) |
7 "Long"
and 10 "Short" |
|
May 30, 2008 |
S&P 500 |
60-day |
+201 points (+15%) |
4 "Long"
and 3 "Short" |
|
May 23, 2008 |
S&P 500 |
60-day |
+222 points (+16%) |
3 "Long"
and 4 "Short" |
|
May 16, 2008 |
S&P 500 |
60-day |
+243 points (+18%) |
4 "Long"
and 3 "Short" |
|
May 9, 2008 |
NASDAQ 100 |
10-day |
+97 points (+5.1%) |
10
"Long" and 10 "Short" |
|
May 2, 2008 |
S&P 500 |
15-day |
+31 points (+2.2%) |
7 "Long"
and 9 "Short" |
|
April 25, 2008 |
S&P 500 |
60-day |
+251 points (+18%) |
7 "Long"
and 8 "Short" |
|
April 18, 2008 |
S&P 500 |
15-day |
+91 points (+6.6%) |
3 "Long"
and 3 "Short" |
|
April 11, 2008 |
S&P 500 |
15-day |
+39 points (+3.0%) |
4 "Long"
and 5 "Short" |
|
April 4, 2008 |
NASDAQ 100 |
5-day |
+93
points (+5.2%) |
7 "Long" and 6 "Short" |
|
March 28, 2008 |
S&P 500 |
60-day |
+29
points (+2.1%) |
6 "Long" and 7 "Short" |
|
March 20, 2008 |
S&P 500 |
5-day |
+53
points (+4.2%) |
3 "Long" and 4 "Short" |
|
March 14, 2008 |
S&P 500 |
5-day |
+77
points (+6.0%) |
6 "Long" and 5 "Short" |
|
March 7, 2008 |
S&P 500 |
60-day |
+222 points (+15%) |
9 "Long"
and 9 "Short" |
|
Febr. 29, 2008 |
S&P 500 |
60-day |
+211 points (+14%) |
8 "Long"
and 8 "Short" |
|
Feb. 22, 2008 |
S&P 500 |
15-day |
+85 points (+6.4%) |
4 "Long"
and 5 "Short" |
|
Feb. 15, 2008 |
S&P 500 |
60-day |
+211 points (+15%) |
7 "Long"
and 7 "Short" |
|
Feb. 8, 2008 |
S&P 500 |
60-day |
+214 points (+14%) |
6 "Long"
and 6 "Short" |
|
Feb. 1, 2008 |
S&P 500 |
60-day |
+246 points (+17%) |
5 "Long"
and 5 "Short" |
|
Jan. 25, 2008 |
S&P 500 |
60-day |
+330 points (+20%) |
5 "Long"
and 5 "Short" |
|
Jan. 18, 2008 |
S&P 500 |
60-day |
+330 points (+22%) |
4 "Long" and 5 "Short" |
|
Jan. 11, 2008 |
S&P 500 |
60-day |
+309 points (+21%) |
5 "Long" and 5 "Short" |
|
Jan. 4, 2008 |
S&P 500 |
60-day |
+291 points (+20%) |
4 "Long" and 5 "Short" |
|