An Example of a Trading System Based on the SBV and Moving Averages

For making trading decisions, the use of multiple technical studies has always been considered to be safer than reliance on only one indicator, even one of the best indicators. Many traders use several technical indicators to build a reliable trading system. This is considered to be good practice. The SBV oscillator is no exception. It can be used along with other technical studies to improve the performance of the system, making it safer and adapting it to your personal trading style.

Volume and price are always connected. There is no price movement without volume and there is no volume without a price movement. That is why we consider volume to be one of the most important parameters of the stock market. In order to receive a complete picture of the market, one should always analyze price along with the corresponding volume. We strongly believe that a trading system that uses at least one volume-based technical indicator, together with a price-based technical indicator, is much better and more reliable then a trading system that is based solely on price indicators, no matter how many indicators are used.

In our examples below, we show how our SBV oscillator can be used in conjunction with price moving averages. However, these are not the only technical indicators that can be used with SBV. The SBV can be used also with RSI, Stochastics, MACD, advance/decline indicators and other technical studies.

The rules below describe our simple SBV trading system:

1. Once the SBV indicator declines below 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 advances above minus 20% (after having been below that level), we will enter a long position (the indicator still shows red);
3.  Once the SBV indicator rallies above 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 declines below plus 20% (after having been above that level), we will enter a short position (the indicator still shows green).

Moving averages are among the most popular and easy-to-use indicators known in technical analysis. Moving averages smooth prices by making it easier to identify the trend direction. Basically, they are trend-following indicators. For greater trading safety, it is always best to follow the golden rule that states that the trend is your friend and trade in the direction of the trend.

Two simple moving averages with different bar periods can be used to confirm a trend in an analyzed time-frame. We call the moving average with the shorter bar period a fast moving average and the moving average with the longer bar period a slow moving average. When the fast moving average is growing and running above the slow moving average, it is considered to be confirmation of an up-trend. When the fast moving average is sliding downward and moves below the slow moving average, it is considered to be confirmation of a down-trend.

According to these moving average rules, a simple SBV trading system can be modified to a more conservative trading system that uses the SBV oscillator and two simple moving averages by adding the following simple rules:

Rule #5: Open a long trade if the SBV oscillator generates a signal to buy only when the fast moving average is above the slow moving average (when an up-trend is confirmed by moving averages). Ignore SBV signals to open a long trade when the fast moving average is below the slow moving average.

Rule #6: Open a short trade if the SBV oscillator generates a signal to sell only when the fast moving average is below the slow moving average (when a down-trend is confirmed by moving averages). Ignore SBV signals to open a short trade when the fast moving average is above the slow moving average.

Of course, the 6-rule trading system that combines SBV and moving averages will generate fewer trades and will increase the time that a trader remains in cash. However, the number of losing trades can be reduced to a minimum by this system. This system can be used by traders who wish to have trades of short duration – those who wish to jump into the market at the safest moment and pocket their profits as quickly as possible.

Start using our Professional Charts
and Make Money with our System!

Sign up for a Free Trial Now!
(credit card not required)