Trading Long with a Simple SBV Trading System
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Below, we list 4 simple trading rules based on
our SBV indicator. The 33% level for the SBV indicator is used for
illustrative purposes only to show how the system works:
(A) To initiate a long position:
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Once the SBV indicator has dropped below minus 33% (the
SBV indicator will show red), wait for it to advance above that level,
then enter a long position;
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Once the SBV indicator advances above plus 33%
(the indicator will now show green), enter a long position (if are not already
long);
(B) To close a long position:
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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;
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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, #3, and a critical level of 33% for the SBV
indicator. S&P 500 index. 15-day view. SBV(16,1) |
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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 depending on 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 back 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 may serve not just to cut losses when an index moves against your long
position – you can also use it to open a short position at the same time.
| Chart 2: |
Example of a long trade
using rules #1, #4, and a critical level of 33% for the SBV
indicator. S&P 500 index. 15-day view. SBV(16,1) |
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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 us into a
long trade.
| Chart 3: |
Example of a long trade
using rules #2, #3, and a critical level of 33% for the SBV
indicator. S&P 500 index. 15-day view. SBV(16,1). |
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