Emini S&P 500, Russell 2000, DOW and Nasdaq 100 Futures Charts.

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The volume surge analysis underlying the SBV oscillator is a very complex system, it delivers a straightforward mechanical revelation of the entry and exit points of large institutional money that precedes market price reversals.

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S&P 500 E-mini Trading Systems

A trading system typically comprises a specific set of rules that determine entry and exit points for a given trading vehicle. It generally also incorporates various technical analysis indicators that provide feedback about the strength and direction of a trend. Trading systems may be tailored to the specific needs of individual traders.

Rules for an S&P 500 E-mini Trading System

A complete trading system should go well beyond simple signal generation. It ought to incorporate decision-making procedures (where to buy and sell) and include risk management calculations. A complete trading system should also include auto-trading capabilities based on the signals it generates. Finally, a good trading system must operate objectively, ideally removing the emotional factor from the trading process.

Using a volume-based system to trade the S&P 500 e-mini futures as an example, the following simple rules could apply:

Establish the critical VMA (volume moving average) levels that precede index reversals in a majority of cases;
During a decline on the index, buy when the VMA exceeds the critical level (as defined in step 1) and then VMA starts to move lower.
During an advance on the index, go short when the VMA exceeds the critical level (as defined in step 1) and VMA then starts to move lower.

These rules are very basic; depending on the specific trading application, they may have to be adjusted. For instance, when trading with volume-based indicators, you may have to define separate critical VMA levels for downtrends and for uptrends. In addition, it is good practice to incorporate additional rules into a trading system. This may include programming trade exit points and including a stop-loss policy.

Building a Trading System

Reliable, historically tested technical indicators form the building blocks of a good trading system. However, even the best-performing technical indicators can lose (some of) their validity when incorporated into a trading system. Once they are integrated into a system, indicator levels and critical thresholds may have to be adjusted in accordance with system parameters (such as timeframes, for instance). For example, indicator settings that work well for a 5-minute timeframe may not be suitable for a 30-minute timeframe. In addition, not all technical indicators that work well with end-of-day data can be applied to intraday trading. It is vital that you do not merely back-test your system; you should also assess its performance in real time.

The technical indicators that are to be incorporated into a trading system must first be well-researched and thoroughly tested. Several indicators may be combined into one system. The trading system then needs to undergo testing, adjusting, and fine-tuning. Only after completing such a comprehensive development process can a system trader realistically expect to auto-trade the signals generated by the system.

9/6/2010 - SV1

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