Your brokerage would typically be $ 20 to $ 50 per lot PLUS Taxes. Now in one lot you would end up paying up to $ 500 as brokerage (100) and taxes (400). Therefore, to breakeven per lot, you’d need a movement of 7 points minimum. If you sell before that, you lose. If you make a loss, you lose capital + brokerage + taxes.
Therefore, if you are uncomfortable with this 5 minute strategy, ditch it and move on to more reliable and longer 15-minute and 30-minute strategies that I will blog about in the days to come.
5 Minute Trading Strategy
The 5 Minute strategy is designed to help forex traders play reversals and stay in the position as prices trend in a new direction. The strategy relies on exponential moving averages and the MACD indicator. As the trend is unfolding, stop-loss orders and trailing stops are used to protect profits.
Risk takers who want to persist with this strategy, please read on:
Rules of Trading 5 Minute Candles
This trading works best for Indices, mostly the Nifty and Bank Nifty.
This is an Intra Day Strategy, You can apply it to extremely liquid FNO stocks such as Reliance, but do not apply it to FNO stocks where the spreads are high (MRF, Shree Cement, SRF, etc.) or where the volumes are low (Grasim).
This strategy will not work on cash stocks. You have to be extremely agile and always watch the charts while holding a position.
Be quick in booking your profits or losses because you will get quite a opportunities during the day. You will need a minimum 5-7 point movement to breakeven. Now, to understand this strategy, you must focus and observe.
Trading The 5-Minute Candles
You will have to setup: VWAP (learn it here) (Primary indicator)
EMA Cross (5 period/12 period) (many folks 5 period/8 period – so you can paper trade and decide which one is better) (Primary Indicator)
- RSI (14) (Secondary or Confirmatory Indicator)
- Volumes (Secondary or Confirmatory Indicator)
STEP A: SETUP THE VWAP AND AND OBSERVE THIS NIFTY CHART (from 18 June 2018 to 22 June 2018)
What we can easily figure out is this:
- A. When the price decisively breaks the VWAP, the Nifty goes into a free fall.
- B. The price decisively crosses above the VWAP and the Nifty scales up.
- C. When the price decisively breaks the VWAP, the Nifty falls.
- C-D. Notice that the Nifty rises in this phase, but is still below the VWAP.
- D. The price breaks the VWAP, the Nifty falls for a few candles.
- E. The price rises above the VWAP, and this time the rise is relentless.
The observations are:
What is sure is that when price rises or falls below VWAP, it leaves profits on the table so long we take the correct action.
There are up and down spikes in between A-B-C-D-E. But since the price is above or below the VWAP, there is no way of figuring out these movements UNLESS there is another indicator that helps us figure these out.
There is no way of telling how long a rise or fall will last unless we are helped by another indicator. Therefore, let us know plot the EMA Cross (5-12) and the RSI.
STEP B: SETUP THE CHART USING VWAP, EMA CROSS AND RSI
Please open the VWAP chart above in a separate window as you will have to correlate. Let’s start:
On 18 June 2018, when the price fell below the VWAP, the 5 period EMA crossed below the 12 period EMA and the RSI too fell to 39.96. The volumes too were above the 20 Day MA.
Bearishness was confirmed by all 4 indicators.
A short trade was confirmed. Between Phases there was no significant EMA crossover till 20-6-18 at 10.35 AM.
On 20 June, at 10.35, the 5 Period EMA crossed above the 12 Period EMA. At this time the price was below the VWAP.
The RSI too started rising. Within 15 minutes, the price crossed the VWAP and went on to head much higher. In this case the EMA gave a signal in advance.
Let’s check what happened on 21-6-18
On 21 June, at 9.25 AM, the price fell below the VWAP, and after 15 minutes the 5 Period EMA fell below the 12 Period EMA.
The RSI too started falling. In this case the VWAP reading gave a signal in advance.
Okay, by now you would have got the point and I won’t get into checking in between phases any more because you can do that by setting up the chart. Let’s flesh out the trading strategy.
The 5 Minute Candle Trading Strategy (Final Points)
The VWAP and EMA are the primary indicators to follow. RSI is secondary – it confirms the trend. Volumes are average-important for this strategy.
When the price rises or falls above or below the VWAP, the movement continues for at least 10+ candles (50 minutes) as we have seen in the example above. But this is not a must. In Phase A, the fall includes 80 candles, BTW.
The EMA Cross, another primary indicator, also clues traders on to entry and exit points. It can provide clues before, after and in-between the stages in which the price crosses above or below the VWAP.
Spiking volumes at any stage can provide vital clues. For example, on 22-6-18 at 11.50 AM, the volumes spiked when the price was above the VWAP. The EMA crossover happened as well, and thereafter the prices started spiking.
Now 2nd examples 5 Minute Trading Strategy
In this article, we will cover everything you need to know about 5-minute charts. First, we will touch on the basics of the 5-minute chart. Next, we will move onto two popular chart patterns comprised of 5-minute charts that print every day. Lastly, we will cover advanced trading techniques of combining indicators and multiple time frames.
5 Minute Trading Strategy
5-minute charts illustrate the summary of a stock’s activity for every 5-minute period within the trading session. The core market session is 6.5 hours per day [1]; therefore, a 5-minute chart will have 78 five minute bars printed for every full trading session. Day traders are commonly trading 5-minute charts to identify short-term trends and execute their trading strategy of choice.
Where to Select the 5-Minute Time Frame
Most trading applications will allow you to select the time frame to analyze price data. Within the Tradingsim platform, you can select the 5-minute interval directly above the chart.
The close on 5-minute charts gives insight into the immediate market direction of the trend for a stock. When a stock closes at the low or high of the 5-minute bar, there is often a short-term breather where the stock will go in the opposite direction. The psychology behind this is that the stock has been pushed to an extreme as other active traders chase the price trend. This breather can mark a major reversal, but in the majority of cases, it creates the environment for a .25% – .5% counter move.
How Exactly Do You Trade 5 Minute Charts?
I have not performed an exhaustive scientific study as I am a trader, but I would dare to say the 5-minute chart is one of the most popular time frames for day traders.
5-minutes provides you with the right mix of monitoring the details, without scalping, and conversely allowing you to avoid waiting for 60-minutes to pull the trigger as well.
It’s that fine wine where call it the universe, or just human psychology, most traders feel comfortable within this time unit of measure.
In this article, I will cover a number of general topics and strategies that you can use to help you when trading on a 5-minute timeframe.
By the sheer definition of a 5-minute timeframe, the strategies and topics covered in this article will focus on the art of day trading.
Most of the liquidity and trading activity in the market occurs in the morning and on the close.
In the morning stocks will trend hard for the first 20-30 minutes into the 10 am reversal time zone. Day traders that are looking to go opposite to the trend can wait for a close at the high or low of the 5-minute bar to go opposite to the morning move.
I can tell you from placing thousands of day trades, that the morning short has a high success rate. There is something about the retail trading market in the morning that brings a fresh batch of bag holders chasing the market for quick gains every morning.
The smart money will grab the breakout and ride the market for quick profits. However, new traders will either hold on too long or jump on the bandwagon too late.
The problem with 5-minute charts is that the time frame is too large to capture the volatility of the move heading into the 10 am reversal, hence the morning reversal
Let’s review another chart example of a morning reversal where the stock climbs higher, only to reverse lower. This pattern is actually more common than you would think.
This is the 5-minute morning reversal you are going to see most often. There is a slight pop in the morning and then after a move higher, a sharp reaction lower. I don’t say this to frighten you, you just need to be prepared to cut your losses quickly with tight stops if things go against you.
Just know trading 5-minute charts in the morning should be treated with the utmost seriousness.
- Also Read: What is Trading Account? Must Know
Trading Breakouts
In addition to pullback trades, breakout trades are also a big part of active trading. For these setups, you want to find stocks that are up huge in the pre-market.
Next, you want to make sure they have little to no overhead resistance. If you are open to more risk and would like to reap more rewards, then you will want to set your eyes on low float stocks. If you are looking to play things a little safer, then look to stocks with a float north of 100 million shares.
But no matter your risk appetite, the key to success is cutting your losers and letting your winners run.
If you trade pre-market, then your range can develop in the early am and you could be in a trade as early as 9:31 in the morning. However, if you do not use pre-market data, you will want to focus on the opening range.
Next, you want a stock with volume that can push the price higher. The last thing I will leave you with is you should not fall in love with these high flyers. Most of them will run their course in ten to thirty minutes.
So, remember to keep your stops tight and remember to take profits as the stock goes higher.
These breakout trades also work on short positions as well. In the above chart, notice how GEVO broke down after already having a strong move to the downside.
The key takeaway from this section is that in addition to understanding you need to trade the ranges, you also want to learn the patterns.
After a while, certain patterns will emerge that you can use to improve the accuracy of the trades you place.
In the next section, we are going to go beyond chart patterns and dig into various indicators you can use with 5-minute charts to find profitable setups.
- Also Read: How To Grow Your Business Online in Trading?
Some important questions answers by users
Three most profitable Forex trading strategies
- Scalping strategy “Bali” This strategy is quite popular, at least, you can find its description on many trading websites.
- Candlestick strategy “Fight the tiger”
- “Profit Parabolic” trading strategy based on a Moving Average.
What is the easiest day trading strategy?
buy the dip day trading strategy
What is the buy the dip day trading strategy? This is the easiest day trading strategy out there! The buy the dip day trading strategy is a trend following strategy where a trader looks to buy a small pullback in the overall upside trend.
Which strategy is best for trading?
6 trading strategies every trader should know
News trading strategy. A news trading strategy involves trading based on news and market expectations, both before and following news releases.
- End-of-day trading strategy.
- Swing trading strategy.
- Day trading strategy.
- Trend trading strategy.
- Scalping trading strategy.
Can Trading Make You Rich?
Forex trading may make you rich if you are a hedge fund with deep pockets or an unusually skilled currency trader. But for the average retail trader, rather than being an easy road to riches, forex trading can be a rocky highway to enormous losses and potential penury.
Who is the richest day trader?
He is notable among the most successful traders in the industry and he gained the reputation of being “The Man Who Broke the Bank of England” when he earned a $1 billion profit when he executed a 10 billion pound short sale, but Soros has earned his fortune in a variety of different investment activities
Which moving average is best for intraday?
5-, 8- and 13-bar simple moving averages offer perfect inputs for day traders seeking an edge in trading the market from both the long and short sides. The moving averages also work well as filters, telling fast-fingered market players when risk is too high for intraday entries.
Know more about 5 Minute Trading Strategy visit on Wikipedia.
