5 Minute Charts Explanation

and Guide + Three Free Setups

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 using the 5-minute charts. Lastly, we will cover
advanced trading techniques of combining indicators and
multiple time frames.

5-Minute Bar Definition

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.

Select 5 Minutes
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 counter
move.
How Do You Trade 5 Minute Charts?
Bar any exhaustive scientific studies, we 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 10, 15, 30 or 60-minutes to pull the trigger
as well.

It’s that fine line where most traders feel comfortable within
this time unit of measure. It also quietens the noise of 1 and
2 minute charts.

Now, let’s dive into a few strategies you can use with this
time frame.

The Morning Reversal Strategy

Most of the liquidity and trading activity in the market
[2]
occurs in the morning and near 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.

The morning reversal 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, perhaps on a breakout
that fails like this OCUP example below:
Bearish Engulfing Morning Reversal
The 5-minute chart time frame is often too large to capture
the volatility of the move heading into the 10 am reversal.
This can be a blessing or a curse depending on how you like to
trade.

Candlestick Patterns Can Help

Notice that in the example given above with OCUP the failed
breakout candle on the 5 minute chart is a bearish engulfing
candle.
We won’t go into great detail on these strategies in this
article, but we have a great resource for identifying bullish
patterns and bearish candlestick patterns on the site.

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.

Morning Reversal
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.

As you can see from the spinning top at the 6th 5 minute bar
of the day, we have supply entering the market. We then get a
breakout from that level that fails — a great opportunity to
get short.

As always, treat trading 5-minute charts in the morning

seriously, especially on the short side. Always put your stops
in.

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 considerably in the pre-market or with
volume right off the open.

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.

5 Minute Chart Morning Breakout Example

1:
Morning Breakout of 5 Minute Chart
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.

You might also find a solid breakout strategy using our small
account building setup.

Next, you want a stock with volume that can push the price
[3]
higher .

Lastly, you shouldn’t 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 to take profits as

the stock goes higher.

5 Minute Chart Morning Breakdown Example:

5 Minute chart breakdown
These breakout trades also work on short positions. In the
above chart, notice how VLON broke down after already having a
strong gap to the downside.

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.

How to Enter and Exit Trades on a

5-Minute Chart with Oscillators and
Fast Lines
Oscillators do just that, they oscillate between high and low
extremes.

Yet, oscillators give many fake signals.

According to Martha Stokes, CMT from technitrader.com,

“Most traders are told to use Stochastic as an Overbought

 exit or sell short signal, and an Oversold entry or buy
signal. This simplistic approach worked well prior to the
1990s and the advent of electronic trading plus massive
institutional trading activity. However, this is far too
simple an approach for the faster-paced more dynamic and
complex marketplace of today, where short term trading
[4]
dominates more than ever.”

Since they are leading indicators, oscillators point out that

a trend might emerge, but it is no guarantee.

For this reason, oscillators are one of the most attractive

tools for day traders as timing is of the essence.

Nevertheless, if not used properly, they often lead to

failure. Therefore, we recommend combining two oscillators
when trading on a 5-minute timeframe in order to validate
trade signals.

Personally, we like oscillators only for trade entry and not

trade management.

Therefore, we recommend you include a fast line on your chart

in order to attain exit points on 5-minute stock charts. Some
of these lines could be a regular Moving Average, DEMA, TEMA,
Hull MA, Least Squares MA, Arnaud Legoux MA, etc.

In this section, we will cover 3 simple strategies you can use

with 5-minute charts and indicators.

Strategy #1 – Stochastic Oscillator

+ RSI + Triple EMA
This simple strategy uses a three-pronged approach across two
oscillators and an on-chart moving average indicator.

Entering a Trade
Trade entry signals are generated when the stochastic
oscillator and relative strength index provide confirming
signals.

Trade Exit

You should exit the trade once the price closes beyond the
TEMA in the opposite direction of the primary trend.

There are many cases when candles move partially beyond the
TEMA line. We disregard such exit points and we exit the
market when the price fully breaks the TEMA. Have a look at
the example below:

5-minute chart with oscillators

This is the 5-minute chart of General Motors. The two
instruments at the bottom of the chart are the Stochastic
Oscillator and the RSI. The TEMA is the green curved line on
the chart. The green pairs of circles are the moments when we
get both entry signals.

How to Use the Indicators

First, we spot overbought signals from the RSI and the
stochastic and we enter the trade when the stochastic lines
have a bearish crossover. We go short and we follow the
bearish activity for 15 full periods, which is a relatively
long period of time for a day trader. Good for us!
We exit the trade once the price closes above the TEMA. This
short position generated a profit of $0.43 (43 cents) per
share, which is a decent amount even for advanced trading
strategies.

Later, we receive a few more overbought/oversold signals from

the stochastic, but they are not confirmed by the RSI. Thus,
we stay out of the market until the next RSI signal.

Our second trade comes when the RSI enters the oversold area
just for a moment. This long signal is confirmed by the
stochastic, so we go long. The bullish move that ensued is
minor, but still in our favor!

We hold this trade for 9 periods before closing the position.

We exit the market when a bigger bearish candle closes below
the TEMA with its full body. This long trade brought us a
profit of $0.09 (9 cents) per share.

On the next day, we manage to identify another long signal

from the stochastic and the RSI.

We hold the long position open for 14 periods before one of

the bearish candles on the way up close below the TEMA. This
long position generated a profit of $0.46 (46 cents) per
share.

Strategy Results
3 Positions
2 long
1 short
Time in the market: 3 hours and 10 minutes
Total profit: $0.98 (98 cents) per share

Strategy #2 – MACD + MFI

For this next strategy, we will combine the Moving Average
Convergence Divergence with the Money Flow Index. We will
enter the market when we receive confirming signals of the
MACD and the MFI.

However, for how long will we hold the trades?

Notice that in this stock trading setup we have no on-chart

trading indicator for identifying exit points.

The reason for this is that the MACD does a pretty good job of
this itself. We will simply exit the market whenever the MACD
has a crossover in the opposite direction!

Notice that when using the MACD for exit points, you stay in
the market for a longer period of time.

5-minute chart + MACD + MFI

This is the 5-minute chart of McDonald’s for Sep 30, 2015. The
two instruments at the bottom of the chart are the MACD and
the Money Flow Index. The green circles indicate the entry
signals we receive from the two indicators. The red circles
indicate the moment when the MACD tells us to get out of the
market.

Notice that in this example, the exit point of a position is

the entry point of the next one. Thus, the red and the green
circles match in three cases.
How to Use the Indicators
In the first trade, we have matching bearish entry signals
from the MFI and the MACD. We short McDonald’s.

Although there is strong hesitation in the price movement, no

exit signal is provided from the MACD and we hold our
position. Later on, the price moves in our favor and we close
the trade when the MACD has a bullish crossover. We were short
for 34 periods and generate a profit of $0.33 (33 cents).

As we said, in this strategy example, we often open a contrary

position right after closing the trade. Therefore, once we
received the exit crossover from the MACD, the MFI gave us a
long signal.

We stay in the market for 36 periods until the MACD gives us a

bearish crossover. We collect a profit of $0.56 (56 cents) per
share from this trade – slightly better than the previous
example.

The MFI is already high and we immediately open a short

position after the MACD crossover from the previous position.
McDonald’s starts to move in our favor, but the direction
changes rapidly. Yet, the two lines of the MACD interact, but
they do not create a crossover. Thus, we hold our short
position for 39 periods.

In this trade, we accumulated a profit of $0.81 (81 cents) per

share – much better!

With the exit of the previous position came the entry point
for the next trade. This is so because the MFI was already
down when the MACD exit crossover appeared. Thus, we go long
and we enter the best trade of the four! We hold McDonald’s
for 27 periods before the MACD gives us a bearish crossover.
This long position generated a profit of $0.88 (88 cents) per
share. Well, that my friend is a good trade!
Strategy Results
4 Positions
2 long
2 short
Time in the market: 11 hours and 20 minutes
Total profit: $2.58 per share

Strategy #3 – Klinger Oscillator +

RVI + 12-Period Least Squares MA
This 5-minute chart strategy involves the Klinger Oscillator
and the Relative Vigor index for setting entry points. We try
to match long and short signals with the two oscillators,
which will be an indication to trade the equity. When we get
these two signals, we open a position and we hold it until we
see a candle closing beyond the 12-period LSMA.

5-minute chart + KO + RVI + LSMA

This is the 5-minute chart of Yahoo. The two instruments at
the bottom are the RVA and the Klinger. The blue curved line
on the chart is the 12-period LSMA. On this chart, we have
four trades. The green circles show the four pairs of signals
we get from the RVA and the Klinger.
How to Use the Indicators
First, we get a bullish signal from the Klinger, which is
confirmed by the RVA after 4 periods. When we get the
confirmation, we go long. We manage to hold the trade for four
candles before we see a bearish candle below the LSMA. We get
$0.10 (10 cents) per share from this trade.

Four periods later, the Klinger and the RVA give us bearish
signals at once and we go short. We get a slight bearish move
of four periods before a candle closes below the LSMA. We
generate $0.12 (12 cents) per share more.

The third trade is the most successful one.

Six periods after the previous position, we get matching

bullish signals from the Klinger and the RVA. Thus, we go long
with Yahoo. We manage to stay for 9 periods in this trade
before a candle closes with its full body below the 12-period
LSMA.

Notice that at the end of the bullish move, there is another

bearish candle, which closes below the LSMA, but not with its
full body. Therefore, we disregard it as an exit signal. This
long position brings us a profit of $0.37 (37 cents) per
share.

With the next candle, we get bearish signals from the RVA and
the Klinger and we go short with the closing of the previous
long position. We get out of this trade after 5 periods when a
bigger bullish candle closes above the LSMA. This trade
generated a profit of only $0.03 (3 cents) per share.

Strategy Results
4 Positions
2 long
2 short
Time in the market: 2 hours and 10 minutes
 Total profit: $0.62 (62 cents) per share

Which 5-minute bar trading setup is

better?
The trading strategy we prefer when trading 5-minute charts is
the MACD + MFI. The reason for this is that this strategy
distributes the trading along the entire trading day.

In the example above, we covered the whole day with only 4

trades. Furthermore, we generated an impressive amount per
share!

In the other two strategies, the number of trades per day will
be significantly more. As you see with MACD + MFI, we traded 4
positions for 11 hours, while with Klinger, RVI, and LSMA, we
traded 4 positions for only 2 hours.

Yet, some of you will like fast-paced trading and will like to
exit the market more frequently. Just remember in trading,
more effort does not equal more money.

Using Multiple Timeframes

One thing you will want to do with 5 -minute charts is to use
multiple time frames to help support your point of view.

In reality, 5-minute charts are great for stocks with lower

volatility. However, if you are trading low float stocks you
will want to use a one-minute or two-minute chart to track
price movement.

While you are monitoring price movement on a lower level, you

will also need to monitor the bigger trends.

To do this, you will want to look at a daily or hourly chart.

So, when you are setting up your trading desk, have multiple
charts up of the same stock. Below is a screenshot from
Tradingsim of an example of how you need to view stocks on
multiple time frames.

Multi-time Frame View

In the above chart, notice how VLON has three time frames, 2-
minute, 5-minute and daily.

The 5-minute chart is your anchor and was showing a

consolidation was taking place. The two-minute chart also
displayed a similar consolidation pattern.

Lastly, the daily chart shows that after a nice run-up, VLDN
was starting to stabilize after a retracement of the rally.

So, in this example, as a trader, the big thing you are

looking for is alignment of the same narrative across multiple
time frames.

Summary
Even if you are not trading 5-minute charts, it is essential
that you keep an eye on them. The majority of day traders are
using 5-minute charts to make their trading decisions.
Therefore, these traders tend to control the action.

If you are trading with 15-minute charts, be mindful that a

sharp counter-trend move can occur at the close of a 5-minute
bar.

Remember, a close at the high or low of a 5-minute bar is a

potential indication that a minor reversal is in play. Day
traders should not immediately exit their winning position but
should rather look at this as a sign of a potential trend
change.

Be sure to study candlestick patterns to help with your

strategies.

Also, the morning is where all the action takes place in the
market. If you are going to trade during this time of day,
remember the two most common setups – pull back and the
breakout.

Lastly, 5-minute charts can’t do it all by themselves. You

will need to assist help from other time frames. The one
minute chart for very volatile stocks and the daily charts to
identify long-term trends for support and resistance levels.

External References
1. Holidays and Trading Volumes. New York Stock Exchange
2. Lee, Justina and Peterseil, Yakob. (2019).Wall Street
Fights Stock Machines With Trend-Chasing on Steroids.
Bloomberg.com
3. Sincere, Michael. (2011). ‘Start Day Trading Now: A
Quick and Easy Introduction to Making Money While
Managing Your Risk‘. Simon & Schuster. p. 41
4. Stokes CMT, Martha. (2015). ‘How To Use Stochastic
Ideally‘. Seeking Alpha.com