Important:

The chart setting has been calculated in a straightforward fashion to catch trends of 6 hours or longer. This does not mean that your chart setting is the best for the selected strategy. However, it will define a starting point around which you can begin your research in order to build a personal trading system that will satisfy your trading interests. We recommend that you test different settings before applying the system to real trading.

You have to remember that the chart setting depends on the volatility of the index (stock or other security) that you analyze. In highly volatile markets the price trend tends to change faster than in less volatile times. Furthermore, it can be a good idea to monitor the volatility (you may use ATR, standard deviation, etc.) and adjust the indicator setting accordingly.

For instance, if you see that a technical indicator generates signals when it is too late to open or close a trade (usually during highly volatile periods), you could consider reducing your indicator's bar period setting. If you see that the same technical indicator generates signals when is too early to open or close a trade (usually in less volatile periods), you can consider increasing your indicator's bar period setting.

Example of a simple trading system:

(This is recommended for stock traders who prefer to stay in "cash" as little as possible)

1. Once the SBV(26) on a 15-day-day chart declines below the negative signal level (the indicator will now show red), we will enter a short position (if we are not already short);
2.  Once the SBV(26) on a 15-day-day chart advances above the negative signal level (after having been below that level), we will enter a long position (the indicator still shows red);
3.  Once the SBV(26) on a 15-day-day chart rallies above the positive signal level (the indicator will now show green), we will enter a long position (if we are not already long);
4.  Once the SBV(26) on a 15-day-day chart declines below the positive signal level (after having been above that level), we will enter a short position (the indicator still shows green);
5.  Stop Loss Rule - If the SBV(26) on a 15-day-day chart fell into negative territory and then began to climb, but has not reached the signal line, close the short position when the SBV reaches positive territory, and remain in cash until a new buy signal appears. Do the opposite for a long position.

Example of a trading system that uses a higher timeframe to define the parent trend:

(This is recommended for options traders who prefer to make fewer trades, yet base them on more conservative and stronger signals)

In the technical analysis, the parent trend is used to set a trading system to trade only those signals that are consistent with the parent trend. The motto, "Do not trade against the trend", is the main principle of such trading systems. A trading system that uses a parent trend to filter risky signals is considered to be more conservative and will generate fewer trades than a trading system that uses a technical analysis of only one timeframe.

First, we must define the parent trend:

1. The parent trend is Bullish if the SBV(26) on a 60-day-day chart is moving up and is more than 10-20% higher than the lowest SBV level we had at the nearest (trend) reversal from a down-trend to an up-trend on a 60-day-day chart.

2.  The parent trend is Bearish if the SBV(26) on a 60-day-day chart is moving down and is more than 10-20% lower than the highest SBV level that we had at the nearest (trend) reversal from an up-trend to a down-trend on a 60-day-day chart.

3.  The parent trend is undefined or weak if the SBV(26) on a 60-day-day chart
   
   a) moves sideway;
   or
   b) moves up, but is very close to its nearest lowest level;
   or
   c) moves up, but is very close to its nearest lowest level.

When the parent trend is defined, a trading system can be modified to trade only "Buy" signals when the parent trend is Bullish and to trade only "Sell" signals when the parent trend is Bearish. When the parent trend is undefined or weak, a conservative trader can avoid trading.

1. Once the SBV(26) on a 15-day-day chart declines below the negative signal level (the indicator will now show red), we will enter a short position (if we are not already short) if the parent trend is Bearish;
2. Once the SBV(26) on a 15-day-day chart advances above the negative signal level (after having been below that level), we will enter a long position (the indicator still shows red) if the parent trend is Bullish;
3. Once the SBV(26) on a 15-day-day chart rallies above the positive signal level (the indicator will now show green), we will enter a long position (if we are not already long) if the parent trend is Bullish;
4. Once the SBV(26) on a 15-day-day chart declines below the positive signal level (after having been above that level), we will enter a short position (the indicator still shows green) if a parent trend is Bearish;
5. Once the SBV() on  chart declines below the positive signal level (after having been above that level), we will enter a short position (the indicator still shows green) if a parent trend is Bearish;
6. Additional Stop Loss Rule - If the SBV(26) on a 15-day-day chart fell into negative territory and then began to climb, but has not yet reached the signal line, close our short position when the SBV reaches positive territory, and remain in cash until a new buy signal appears. Do the opposite for a long position.
7. Another Stop Loss Rule - If we are in short position and the parent trend is Bullish, we will close (cover) our short position and wait until a new signal is generated. Similarly, if we are in a long position and the parent trend is Bearish, we will close our long position and remain in cash until a new signal has been generated.