Emini. S&P 500. Russell 2000. Futures. Charts.

• The four-rule system has a lower critical threshold to initiate positions - more trades can thus be generated;

• The four-rule system uses 2 SBV indicator conditions to open a trade. The three-rule system considers only a single SBV indicator condition. The four-rule system may thus generate additional trades;

• By using the four-rule system, a trader almost never stays in cash;

• Since more trades are generated by the four-rule system, more trades resulting in losses may be expected. We therefore lower our stop-loss level to 2 points to minimize losses and keep total session returns positive;

• Historical tests show that the four-rule system may generate a number of small gains or losses ranging between -0.25 to +0.25 points.

We used the following simple four-rule trading system based on our SBV indicator:

Chart 1: Trading with the SBV indicator using a four-rule system.
S&P 500 E-mini. 1-day view. VMA1 = 15-minutes.

Important: A 33% trigger level for the SBV indicator, a six-point profit target, and a two-point stop-loss level were determined in relation to the prevailing market conditions at the time the examples above were selected. In order to establish the optimal critical levels for the SBV indicator, profit targets and stop-loss levels, traders should consider their personal trading style and risk tolerance. They should also review the current market situation and review a chart history of prior volume surges, including their magnitude (i.e., the level the SBV indicator reached).