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SBV Technical Analysis - Trading Volume with Confidence
Trailing Strategy to close a trade
An Example of an S&P 500 Trading
System using a technical analysis based on the SBV Oscillator
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June 13, 2008
+8% (108 points) in two months
This week's SBV
technical analysis example is a
continuation of a previous
example on
May 30, 2008. In this week's example, we use
33% signal line.
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Chart 1. Relationship between the SBV oscillator and
index reversal points. S&P 500 index. 60-day view. 1 bar = 1 hour. SBV(20) |
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In the previous 60-day SBV example, we have explained the using of the
trailing stop rule based on the SBV indicator:
Trailing Stop Rule Example #1: If
the SBV had advanced above 20% and has started to decline without crossing the
33% line, we close the long position and open a short position if the SBV
declines below 20%
or
Trailing Stop Rule Example #2: Once the SBV has declined for
more than 10% and we are long, we close the long position and stay in cash until
a new signal appears.
This week's SBV example shows the use of this rule on June 2, 2008.
We have always stated that the trading system that we describe in our examples
is very simple and that there is always room to improve it. If you follow our
examples, you may see that even such a simple and straightforward system
delivers profit. In reviewing the history of our examples, you may find
description of different rules that can be incorporated in the system in order
to make it more conservative, to cause it to generate more signals, or to make
it react more quickly to strong signals, etc.
In this week's example, we would like to introduce another rule that can be used
in our system. We have already mentioned the use of the "trailing stop." The
same principle can be used to generate signals. In our examples, Rules #2 and #4
are used to generate "Long" and "Short" signals based on the fixed signal line
(33% in our present example). However, this rule can be modified to use a
trailing signal line:
Rule #2 Example: Once the SBV
indicator has started to advance after having been below minus 30%, we will
enter a long position when SBV advances by 10% from its most recent lowest
negative level. If SBV had declined below minus 20% and has started to advance
without crossing minus 30%, we will enter a long position when SBV advances
above minus 20%.
For example, according to the rule above:
- If the SBV has dropped to minus 75% and starts to advance, we will enter
a long position when SBV advances above minus 65%;
- If the SBV has dropped to minus 40% and starts to advance, we will
enter a long position when SBV advances above minus 30%;
- If the SBV has dropped to minus 25% and starts to advance, we will
enter a long position when SBV advances above minus 20%.
As you may see, Rule #2 above uses a trailing principle to generate a "Long"
signal. A similar rule could be created instead of Rule #4 to generate a "Short"
signal.
Note, all numbers (10% trailing, 33% signal and 20% signal) in our examples are
subjective and should be tested before use.
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 has declined below minus 33% (the indicator will
now show red), we will enter a short position (if we are
not already short).
- Once the SBV indicator has advanced above minus 33% (after having
been below that level), we will enter a long position (the
indicator still shows red).
- Once the SBV indicator has rallied above plus 33% (the indicator
will now show green), we will enter a long position (if we
are not already long).
- Once the SBV indicator has declined below plus 33% (after having
been above that level), we will enter a short position (the
indicator still shows green).
- Additional Stop Loss Rule - If the SBV had fallen
into negative territory and has begun to rise, but has not hit the signal
line, close the short position when the SBV is back in positive territory,
and stay in cash until a new buy signal appears. Do the opposite for a long
position.
- Additional Trailing Stop Rule - If you are in
long position and the SBV has declined by more than 10%, close the long
position and stay in cash until a new signal appears. If you have a short
position and the SBV has advanced by more than 10%, close the short position
and stay in cash until a new signal appears.
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 |
|
04/15/08 |
rule #2 |
Buy |
1334 |
04/21/08 |
rule #4 |
Sell |
1384 |
+50 |
|
04/21/08 |
rule #4 |
Sell Short |
1384 |
04/24/08 |
rule #5 |
Cash |
1389 |
-5 |
|
05/12/08 |
rule #2 |
Buy |
1397 |
05/14/08 |
rule #4 |
Sell |
1410 |
+13 |
|
05/14/08 |
rule #4 |
Sell Short |
1410 |
05/27/08 |
rule #2 |
Buy to Cover |
1379 |
+31 |
|
05/27/08 |
rule #2 |
Buy |
1379 |
06/02/08 |
rule #6 |
Cash |
1388 |
+9 |
|
06/12/08 |
rule #2 |
Buy |
1350 |
06/13/08 |
|
|
1360 |
+10 |
|
Total: | +108 |
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.
Disclaimer:
The chart example is intended for educational purposes only and does not
constitute trading advice or make or imply any market trend prediction.
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V. K.
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