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5 Minute Day Trader
This strategy is a quick and easy way to day trade currency pairs without having to screen watch from
morning til night.
This strategy was developed a few years ago now for a student who I was training 1-2-1 and wanted to day
trade but didn't always have the time to monitor the charts due to his regular work commitments. It is in
essence a variation on the Asian Break Out Method
The rules to this system are simple, and executing and managing trades will take no more than five minutes
of your time. The only tricky part is bringing your knowledge base up to speed with the strategy so this
becomes a five-minute process. This can be done in under a couple of weeks.
In this guide Ill briefly introduce you to the four simple steps below. Then Ill take you through some
worked examples in order to illustrate just how easy this system is. At the end of this guide I will
recommend a number of places where you will be able to put what youve learned into practice.
This trading method involves four simple steps.
Identify a trading opportunity 1.
Select a direction 2.
Place your trade 3.
Manage your trade later at a specific time 4.
1 - First of all you need to identify a trading opportunity. This should be done at 06.00 UK time. And will
normally come in the form of an inside bar. NB: An inside bar is a bar in which its high/low range is inside
the high/low range of the previous bar (Glossary a).
At this stage you need to mark up the 8 hour price bar between 22.00 the previous night
and 06.00 the following morning. This is called the overnight range. You need to mark
up the highs and lows of this bar with two horizontal lines. This will be your entry bar.
2 - To select a direction you need to look at the bar immediately prior to your entry bar
between 14.00 and 22.00 the previous day.
If the bar closed higher than the open look for a long entry
If the bar closed lower than the open look for a short entry
3 - Now you simply place your trade.
If you identified a long opportunity place a buy order above the high of the inside bar, with your stop loss
order below the low of the inside bar.
If you identified a short opportunity place a sell order below the low of the inside bar, with your stop loss
above the high of the inside bar.
The entry order should be 10 pips above the high for a long trade and 10 pips below the low for a
short trade.
The stop loss order should be 5 pips below the low for a long trade and 5 pips above the high for a
short trade.
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4 - After placing your trade you can forget about it until 14.00 when you will need to go back and check
on it. You will then either:
Cancel the orders as they have not been triggered
OR
Raise your stop loss to 10 pips below the closing price at this time for a long trade
Lower your stop loss to 10 pips above the closing price at this time for a short trade.
You could simply close the trade at this time however continuing will keep the trade mechanical and
permit accurate back testing.
It is advisable to move the stop losses in the manner indicated above as this will lock in the majority of
profit for the trade at this time of the day. It will also give the trade the opportunity to develop a little further
throughout the day. More often than not the trade will be stopped out however you can also capture a
larger portion of any potential moves that come later.
Example 1: A Standard Trade
Identify the trade at 06.00. Set up your inside bar. 1.
Mark up the highs and lows of this bar to set your entry and exit levels. 2.
Select a direction. The bar prior to the entry bar closed higher than it opened. This is known as an
up-bar. This means you need to go long. Place your entry order 10 pips above the high level market at
1.9897. Place your stop loss 5 pips below this at 1.9863.
3.
Check your trade at 14.00. Raise the stop loss to 10 pips below the closing price at 1.9926. 4.
The trade was later stopped out and a profit of 29 pips per contract was achieved. Your risk on this trade
was 34 pips. As you can see the risk versus reward ratio is practically the same. This is a typical type of
trade.
Example 2: A Swing Trade
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A common occurrence with this type of trading is that your trade can be converted into a swing trade
(Glossary b).
This can happen when your trade doesnt get stopped out. All you need to do in this case is simply move the
stop loss (technically now a stop profit as youve locked in a profitable trade) to under the lows of the
8-hour bar for a long trade and above the highs of the 8-hour bar for a short trade.
There is then nothing to do until 06.00 the next day. You need to check the trade at 06.00 and 14.00 (which
would be when youd be looking for new trades anyway); and at 22.00. Checking up on the trade will take
30 seconds each time and you need to simply check the low/high of the last 8 hour period and move the
stop order accordingly.
Below is an example of a day trade that I was in on, which converted into a swing trade.
The entry comes from an inside bar for a long trade. Entry was 10 pips above the high entry at 1.9717, with
the stop loss 5 pips above the high entry at 1.9681. At 14.00 the stop loss was adjusted to 10 pips below the
closing price but was not stopped out.
With each new 8-hour bar I raised my stop loss up to 10 pips below the low in order to lock in more profit
on the trade.
After five days the trade was still open and another entry was triggered. By following the same rules as
before I managed the trade the same way but this time, managed the whole position in this way. At 14.00
on the 5th day of the trade I raised my stop loss to 10 pips below the close, at 1.9926 which was eventually
stopped out for a total move of 209 pips.
As you can see from the chart there were a few other entries available to add into the inside bar set ups
(which I took but for simplicities sake havent highlighted on this chart). But even from the original entry
you can see that great moves can be made off of the back of the initial trading entry.
Example 3: A Multiple Trade
You can actively seek out swing trades and multiple entries (Glossary c) with multiple entries comes the
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opportunity to manage your trade in a different way. In effect when you get your stop loss signal you can
split your trade up to both hedge your bets and go for higher profits.
You will be doing nothing different with the way you set up and spot trading opportunitys you will
merely be managing the trade slightly differently to maximise its potential.
The way I like to do this is to tighten up 2/3rds of my position in the usual fashion and leave 1/3rd open with
a stop loss at the entry level at which the trade is currently (trading) at. That way if you get stopped out at
2/3rds of your trade, you will still have 1/3rd open with enough breathing space to offer up additional
profits.
You have to remember that there is no right or wrong way to money-manage this type of trade it is purely
up to your individual comfort level. I will endeavour to offer up some other examples of how you can
manage your trades more mechanically.
You can tighten up your stop loss on the swing trade but give a wider stop loss on 1/3rd of the trade for
example 40 50 pips (providing you are that much in profit).With each new signal if one is generated
re-apply the same process; tighten the add in portion of the 2/3rds trade to 10 pips behind the closing price
at 14.00, and move the remaining 1/3rd (as well as the previous / original entries) to the last entry level.
In the chart below you can see how the swing trade would develop.
You can see the original entry position and two add in trades (using the same inside bar entry method); and
as per the rules you are trailing your stop losses accordingly. On the 3rd entry you would raise your stop
loss position to 10 pips below the close on 2/3rds of the new position and then move your remaining
position to the last entry level. So now all your trades are at the last entry level two of these profits have
been locked in; and the other one will break even if stopped out.
Example 4: 60 Minutes Trades
One problem you may come across is that you might not have access to these types of 8-hour bars
(depending on who your broker is) or if you do the bars may not match the times Im using.
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This is why Im now going to show you how to use the same set-ups on a 60-minute chart which will still
be a 5-minute decision.
Here is an example of how to set up a 60-minute trade
Mark up the 05.00 06.00 for the current day, the 13.00 14.00 bar and the 21.00 22.00 bar for the
previous day.
In the chart you can see these highlighted with vertical lines.
Mark up the highs and lows of the price action for each of those periods. You will be able to see
instantly if there is a trade or not. The high / low range of the 22.00 06.00 time period should be
within the 14.00 22.00 high / low range as you can see above. If not there is no trade set up.
As before you then select the direction. The closing price 22.00 is lower than the opening price of
22.00 this means that you need to be looking for a short entry.
Your entry has been marked up and is 10 pips below the 22.00 06.00 low. The stop loss will be 5
pips above the high of this time period.
So entry is short at 1.9758 with a stop loss of 1.9796
At 14.00 note the closing price and move the stop loss down to 10 pips above this price. In this
example it will be moved to 1.9667
The trade was stopped out shortly after the stop was adjusted and a profit of 91 pips was realised.
Other Considerations.
The best piece of advice I can give to new traders or trading looking at this style of trading is to work
backwards.
What time do YOU have available to trade?
This pattern allows you not to be screen watching all day but, what if you don't want to trade at 6am (UK
hours) in the morning or can't? Then don't. Use your start time at for example 8am (UK hours).
Are your finding your being stopped out at the 14:00pm (UK hours) decision time with a 10 pip stop past
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the close when 20 pips would have kept you in the trade longer and for a larger price movement? Adjust the
rule and use a slightly larger stop loss size or reduce a portion of the position (take some profits, also called
scaling out) or both.
Similarly, using the same rules for GBPUSD and GBPJPY, you might find that you are not capturing the
best of the days movements on GBPJPY but you are on GBPUSD. It might be that you need to adjust the
rules for the trade management on GBPJPY to compensate for the larger volatility of movment that this pair
has.
Be flexible and make the pattern your own. 1.
Adapt the rules to suit your own purposes and the currency pair you are trading. 2.
Glossary
(a) Inside Bar: Although the continuation method of the inside bar is one of the most common methods of
selecting a trade. When trading things like EURYEN it is common variation is use reversal bars: Basically
these are candlestick bars or hammer bars which I will explain below.
Candlestick Reversal Bars: The method of selecting a trade is practically the same. You compare the entry
candlestick with the previous candlestick as you would with the inside bar but the direction of the trade is
the opposite with a reversal bar. (see Candlestick diagram below)
With this variation instead of an inside bar you are looking for a reveral bar or
in candle stick terms a hammer. The only differnce with the trade is the
selection of direction.
If the bar closed higher than the open look for a short entry
If the bar closed lower than the open look for a long entry
(b) Swing Trade: This is a trade that continues for more than one day.
(c) Multiple Entries: During a swing trade you will often find multiple entry
signals as the trade progresses (through using the inside/reversal bar method),
you can use these to hunt out extra profits.