5m TF Price Action Strategy

Trading Systems Free Forex Trading Systems
1

Update June 2015: Hi folks, this strategy is still getting the odd comment and viewing, glad to see it’s still of value to you! I’m still actively trading with (most) of the principles below. I only take 3-4 trades per week, and use the higher timeframes (daily chart) to establish my overall trading bias/direction. Also in lieu of the 5m timeframe opening range, I use the “Asian” range from 0 GMT to 5 GMT as a high and low to either take reversal entries from the extremities or as breakout pullbacks.
Cheers & good luck, JN. [B]

Welcome to my thread on my 5 minute timeframe price action strategy.[/B] This is a discretionary strategy that trades with the trend on a 5 minute timeframe. This strategy has evolved from Price Action techniques I’ve learnt via Lance Beggs at yourtradingcoach.com & PeteFader’s MadScalper strategy here on babypips.

This strategy trades with the trend on a 5m TF, taking pullbacks that utilise the 14ema and volume. While also being aware of Support & Resistance, Stopping Volume, upcoming news announcements & session opens.

I currently day-trade this strategy full-time at the Asian Open for a few hours, then the Frankfurt Open for a few hours. I focus on trading AUDUSD, USDJPY and EURUSD. I liken trading to a mix between fishing and playing poker, I’ll use these analogies throughout as they work quite well.

I’ll discuss each component of the strategy, and then post trades each day showing it all working together. Things will be easier to understand if you read through the basics so we’re all speaking the same language.

The first six posts in this thread are prerequisite, as there are a few price action basics to introduce. There are also links around the web that reinforce the concepts. Like all forums on babypips, please feel free to participate but try & avoid any question that you could google for yourself.

I’ve bookmarked the next few posts, and I’ll fill them up over this week to include:

Trading with the trend,
[ul]
[li]Trend Definition,[/li][li]Trend Simplification,[/li][/ul]
Support & resistance levels,
[ul]
[li]previous day’s high and low,[/li][li]opening range,[/li][li]support & resistance,[/li][li]100 levels,[/li][/ul]
Risk/reward,
[ul]
[li]stop loss levels,[/li][li]position sizing,[/li][li]trade management,[/li][/ul]
Volume,
[ul]
[li]VSA,[/li][li]stopping volume,[/li][li]confirming trend volume,[/li][li]no supply / no demand,[/li][/ul]
Nitty gritty,
[ul]
[li]brokers,[/li][li]demo accounts & practice,[/li][li]chart setup,[/li][li]trade execution,[/li][li]orders,[/li][li]pairs,[/li][li]references & indicators*,[/li][/ul]
*This strategy doesn’t use any indicators in the traditional sense (no RSI’s, MACD’s etc.) but does use indicators to mark session opens, daily high & lows, and a couple of moving averages to summarise the trend.

Once the forum gets rolling please post any trades that use the strategy and ask any questions. If there’s any queries about MQL4 coding, detailed trading questions or requests for any of my custom indis or templates; I’d request a donation to [B]onegirl.org[/B]. While this isn’t soliciting or advertising, it shows a commitment from your end. For me, a big part of trading is paying it forward.

I don’t necessarily agree with people selling their trading services, that’d be like a fisherman making you pay him in fish to teach you how to fish.

Cheers & look forward to you reading along & joining in,

JN

P.S. So we’re all talking about the same charts, I’ve put together this basic template with indis, you’ll need to add a 14ema and MT4’s volume indicator.

Template - basic5mtf.tpl.zip (1.55 KB)
Indicators - 5mTFbasic_indis.zip (29 KB)
Market Session Indicator - Adam Jowett’s Market Session Indi

I’d encourage everyone to post charts & ask questions etc. Please (feel free to) use the template provided above so we’re all looking at the same chart, try to zoom in & mark your entries & exits with MT4’s arrow symbol.

1 Like
2

Trade with the trend! The trend is your friend! The trend is your friend until it ends or bends! Trade against the trend, never again! Blah blah blah. This is a pretty obvious & basic topic, but I thought I’d cover it.

Price action basics has an uptrend making higher swing highs and higher swing lows, a down trend consists of lower swing highs and lower swing lows. Dow theory I believe? Anyway, determining the trend is fairly simple, if it looks up, it’s up and vice versa. The tricky thing is when does the trend change?


Using an uptrend as an example, the trend is broken (no longer an uptrend) when the swing before the highest swing high is broken. Take the highest high, go back to the swing low before it, and that is the key price on the chart. When price breaks lower than that, the buyers don’t have control anymore.


More often that not though, you can use a simple method that a fellow Australian day-trader uses, a trend line. How to determine the trend with two lines and why they make me horny

For this 5m TF price action strategy, I use a 50ema and 14ema to simplfy my trend, I’ve found that when the 14 is above the 50, this more often than not signifies an uptrend. Vice versa for down trend. I’m cautious when price breaks sharply below the 14ema. In an ideal world of trending pullbacks, price remains above the 14ema, and the 14ema stays above the 50ema.

Here’s an example on this morning’s UDJPY:


Uptrend: higher highs & higher lows, Downtrend: lower highs & lower lows

or

Uptrend: 14ema > 50ema & 50ema not flat, Downtrend: 14ema < 50 ema & 50ema not flat

When these conditions are met, it’s fairly obvious what the trend is! If price is within a 10-12 pip range, it’s not worth trading. For the indicator fanatics out there, if the 50ema is flat or the 14ema is bouncing around the 50ema, price is rangebound.

The 14ema ensures that you are getting “good value” for your trade entry, or as the old saying goes, “Buying Low” in an uptrend or “Selling High” in a downtrend. This strategy heavily depends on price moving, is price isn’t moving, we’re not entering any trades.

The best poker player in the world can sit down at the table, but if he gets dealt dud hands all night he can’t do much. This goes for the fisherman too, if the fish aren’t swimming by, it’s not his fault, there’s just nothing to catch! Movement of the 50 & 14 ema ensure that our fish have started swimming.

I’d go and read anything and everything on trend definition as Lance’s site here -> Search for “trend” | YourTradingCoach

3

Again much like the previous post on identifying the trend, this topic is basic but a must for this strategy. I’d say this is the second most important part of the strategy, after the trend.

Support & Resistance (S&R) levels are real, they aren’t voodoo, and they’re easily identifiable on any chart, index, timeframe, asset etc. They are live though, and if price strongly rejects one, it can “weaken” the S&R level, and vice versa if price spins on a dime at an S&R level, this further confirms the level. S&R levels can be made up from price, previous day’s highs or lows, key levels after news announcements, opening range prices or trading session prices. Basically any key price level that screams out on a chart.

Basic Support & Resistance Levels

S&R prices/levels are “zones” and aren’t exact to the pip or price. This strategy is a 5 minute timeframe strategy, so zooming out to the 1 hour timeframe, place key support & resistance lines. I find the easiest way to do this (without and indi) is to grab a highlighter app (highlight for mac) or similar for windows, and draw basic lines on the chart, connecting swing lows and swing highs. There will be key prices that repeat themselves, they are your key S&R!

Further reading from internet wizards:

Search for “support resistance” | YourTradingCoach
Support And Resistance Basics

Previous Day’s High & Low (PDHL)

The PDHL is key in my eyes, I define the day as starting at the Sydney Open and going through to the end of New York, so the high and low that occurred throughout that time period. For me, these two prices were the be all and end all. I’m not sure whether the “big players”, “huge banks” or giant pending orders were sitting at these prices, but I find that the following day, they’re significant enough to provide strong resistance for price to break through, and if price is strong enough to break through, then it takes off!

The Two S/R Levels You Must Have On Your Charts

Opening Range

For me there are three opening ranges I take note of during the day; the Tokyo, Frankfurt & New York open. I define the opening range as the high and low of the first 5 minutes of the session. I see this as the arm wrestle at the start of the session. If price breaks above the opening range, there’s a higher probability that the buyers won the wrestle, if price breaks below, the sellers won.

The opening range high and low act as support & resistance lines, price retests these lines and they’ve a good risk/reward location to enter from.

From the guru -> Search for “opening range” | YourTradingCoach

Psychological levels

Psychological levels include the 100 numbers (1.3400, 1.3500, 1.3600 etc.), the 50 numbers (halfway between the 100s!) and any long term highs or lows, for example the yearly highs & lows of the EURUSD.

Entering trades that have broken through & then retested S&R offers the best Risk:Reward trades.

Seeing It All On A Chart

tingly.jpg700×519 63.3 KB

S&R is definitely a big part of the “discretionary” of this strategy. The higher probability approach is to not trade into S&R. The chart above demonstrates how price interacts with each S&R level, also some fantastic retests of the Opening Ranges.

Avoid trading “into” S&R unless it offers a suitable Risk/Reward Ratio (1:1 minimum)

Ah indicators, You Beauty

The best thing about all of these key price levels, is that some clever chaps out there in internet land have coded MT4 indicators for each of them! I’m going to post a few indicators in a later post, but here’s the summary of what to google & have a play with:

[ul]
[li]Support & Resistance - Murray Math Support & Resistance
[/li][li]Previous Day’s High & Low - Daily High & Low Indicator
[/li][li]Opening Range - Opening Range Breakout Strategy Indi (can be modified)
[/li][li]Round Numbers Indi - Plots each 100 or 50 price on the chart,
[/li][li]Market Sessions Indi - Adam Jowett’s Market Sessions indi is the shiz,
[/li][/ul]

4

R-Multiples

When talking about risk/reward, I refer to ‘R-multiples’ instead of number of pips, % equity of dollars profit. This way someone with $100 capital can speak the same language as someone with $100,000 capital. If you can consistently make 3R return per day (12 pips for 4 pips risk, 30 pips for 10 pips risk etc.) then you’re a star!

The idea behind this, is each trader define what % of his account is equal to “his” (or her) 1R. I could risk 5% per trade, 2%, 0.25% etc. If I make 4R, for the 5% trader, they’ve just made 20%, the 2% trader has just made 8% and the 0.25% trader has just made 1%! But each trader took the exact same trade.

Position Sizing

From the start, I define the $ amount (or percent) of my capital that I’m going to risk per trade, this is fixed for me, and changes each week as I compound my account. For example, let’s say on a $10,000 account I’m going to risk 1% of my account, or $100.

R = 1% or $100. 1R is the definition of how much I’m willing to risk per trade, it is a dollar amount. On the chart, it is the amount in pips that’s between my entry and my stop loss. If I lose on a trade and let it my initial stop loss, I’m going to lose 1R.

Sizing a position (lot size) is as simple as heading to Position Size Calculator: Free Online Forex Position Sizing Calculator and inputting your capital, % risk ®, and your entry and stop loss levels on your particular setup. This ensures that even when losing, you’ll stay in the game.

So now if someone says “I made 4R on a trade”, this means they made 400% for that trade, or 4 times their risk. This is why it makes me laugh if a trader says “wow I made 200 pips!”… if they risked 100 pips (stop loss) to make 200 pips profit, they made 2R. If I make a 12 pip profit but only risk 3 pips, this trade is 4R, or twice as profitable as the 200 pip trade. Then I’d ask how many 12 pips moves the market makes versus how many 200 pips moves it makes, but that’s another story! :stuck_out_tongue:

Setting a Stop-Loss

I set my stop losses quite tight on a chart for a particular setup, placing the stop-loss below a recent swing low (in an uptrend) or above a recent swing high (in a downtrend). If price is near a support & resistance I’ll look to try and include that in the stop-loss. Depending on your broker, you’ll also need to include the spread in your stop-loss, it’s very frustrating being stopped out by half a pip, so give the trade some room to breathe.

Here’s two recent setups today on USDJPY and EURUSD of stop-loss placement examples:

UJ stoploss.jpg535×550 67.9 KB

This USDJPY setup is in a downtrend, price has broken below S&R and come back to test the 14ema on low volume as indicated by the red down arrow. Price has however not made a lower low so this has me on guard slightly. I think we’re due for a nice entry but I’d like to be conservative with the Stop-Loss and place it a bit higher, near the recent Swing high that tested closer to support & resistance.

EU SL.jpg450×700 30.2 KB

This EURUSD trade on the other hand is a breakout of the opening range, and is also a test of a previous swing high, I’d take the risk here and have a tighter stop loss. Both easy in hindsight to explain, but I can confess that Stop-Loss placement can turn an entry that’s too early into a winner, and a winning trade into a loser if you try to reel the fish in too quickly!

Trade Management

Once in a trade, I look to move the Stop-Loss as close as I can to break even once the trade closes above (long) or below (short) past 1R or 1:1.


Using the EURUSD setup from earlier as an example, an uptrend with a nice sign of No Supply Volume testing the 14ema, our entry is marked, our Stop-Loss below the Swing Low + a pip for the spread, and our 1R target marked. 1R = Entry - SL, this is our break-even target. On this trade, the candle that triggers our entry (candle #2) also closes above 1R, at this candle close we can look to move our SL underneath the lows of bullish candles, this is how I trail. For uptrends, I trail below bullish candles, for downtrend I trail above bearish candles.

With the entry trigger candle closing above 1R, this doesn’t give us much room to move out stop to break-even. At the close of candle #3 we move our stop below the low of candle #3. At the close of #4, move the stop to below the low of #4 etc. Finally we’re stopped out by the wick of candle 6. You can always take profits manually on that large move upwards.

On Moving To Break-even

In my experience, I’ve missed out on trades “eventually” moving into profit because I’ve become impatient and moved to break-even too quickly. Only to see that price wouldn’t have hit my original stop-loss, and then it sailed straight into my profit target. This is why I’ve adopted the method of not moving to break-even until after price closes through 1R.

Profit Targets

I trail most of my trades, but I do find that price rarely bursts through the previous day’s high and lows, so these are good locations for profit targets. Also if you’re a 4:1 or 5:1 trade, there’s no need to be greedy, the next Support & Resistance level is a good place to bank some dollars.

Position Sizing on the Fly

When the markets moving and I’m looking at a couple of pairs, it’s a bit of a pain in the butt to size positions via babypips website, as good as it is. If only we could google “MT4 position sizing indicator” :slight_smile: (I’ll include this in the references)

5

The forex & volume debate has been going on since the caveman did his first Fibonacci retracement. If you’re not a believer in volume in forex that’s ok, but this isn’t a debate about whether the volume in forex is valid or not. Some of the bigger brokers (IBfx, XM, Axitrader) have reliable volume tick activity feeds.

VSA - Volume Spread Analysis

A good primer on volume and VSA (Volume Spread Analysis) is available here - Trade Using VSA (Volume Spread Analysis) @ Forex Factory.

Volume in forex is about measuring the cause versus the effect. Does the volume correlate with the price? In a nice trending move, is volume increasing on the ‘positive’ moves and decreasing on the pullbacks? Did volume spike at Support & Resistance? Did that tiny doji candle produce a massive volume? Volume in conjunction with candle price bars can tell you quite a bit of information.

I’d recommend reading and re-reading “Master the Markets” by Tom Williams (there’s a version available by TradeGuider but they try and sell you their software).

Stopping Volume

Stopping Volume doesn’t occur throughout each session, but it’s worth being aware of. My take on stopping volume is when a large amount of sellers in an uptrend (or buyers in a downtrend) come in and literally “stop” the current move. On the chart this is usually a nice strong bullish candle with a decent sized wick on the top, which indicates the sellers coming in. Without volume on the chart, you wouldn’t know a heavy amount of sellers have come into the market.

Don’t trade into stopping volume, treat it as a strong S&R level.

stopping volume.jpg700×693 58 KB

Lack of Supply & Demand

The first port of call for learning about No Supply No Demand (NSND) is to watch a video on youtube by PeteFader called “No Demand No Supply”, his VSA thread on babypips is also very helpful. In MT4 this is as simple as adding the “Volume” indicator, and making the colours green/red. Keeping an eye out for any NSND volume bars. Of course some clever internet chaps have made a “NSND Alert” & “NSND History” indicators to alert you to these opportunities in real time.

Look for a lack of Supply (or demand) when price pulls-back in a trend.

6

And we’re almost ready to put it all together! This is the last of the introductory posts, some house-keeping stuff about brokers and chart setups, and the finer detail of entries and order.

Brokers

There are all sorts of opinions about brokers, good & bad. I’d recommend heading forexpeacearmy.com and checking the reviews there. My criteria for a good broker is fast execution, minimal slippage and low fees. I use DukasCopy personally but this isn’t a recommendation for them, I’d advise to choose your own that suits you. I’d highly recommend visiting cashbackforex and signing up via them for a broker, as you can get big rebates on your trading fees.

Demo Accounts & Practice

As always, demo trade a system until you’re comfortable with risking real money. There is software available such as forex tester 2 which lets you back-test a discretionary system in a MT4 type environment.

Trade Execution & Orders

Once I’ve confirmed my trend, am happy that price is moving, checked that there is no S&R in the way (or stopping volume) and that I’ve got a nice pullback on low demand, I’ll look to size my position and place a stop buy or sell order at the candle close. During the European & New York session I use stop buy or stop sell orders faded above or below the candle close. During the Asian session I’ll have these prices marked out & enter at market, as sometimes the broker is a bit sleepy to fill Asian orders!


Going Long, fade entry above bearish candles, going short, fade entry below bullish candles.

Pairs & Trading Sessions

With this strategy being a 5 minute timeframe strategy, there’s a nice balance between a more scalping/focused setup & a swing trading 15m/1hr setup. For me, 2-3 pairs is more than enough to keep an eye on and follow the “story” as it unfolds on the chart. I trade during GMT +8 so I wake up to the Asian Open and the Frankfurt Open is in the afternoon.

During the Tokyo Open I look at AUDUSD and USDJPY and at Frankfurt EURUSD and USDJPY. I’d choose freely moving pairs for whatever session you can trade. GBPUSD often moves a lot cleaner than EURUSD but I feel it’s a derivative of EURUSD, I’m always checking EU if I’m looking at GBPUSD. I’d rather trade the raw/base pair.

News Announcements & Session Opens

News makes the forex world go 'round! Possibly. I use fxstreet.com/calendar and the calendar at forex factory to mark all the major news releases for the day. You’ll find that what one site signals as a “high/red” alert, the other won’t even mention! It’s best to double check. Avoid trading prior to major news announcements. At new session open, the trend can also change rapidly, so be aware of upcoming market sessions (using Adam Jowett’s indi listed below!). As with all occupations, day-traders can embrace (or loath) bank holidays! Trading is quite thin on the major bank holidays, I keep tabs on them here - DukasCopy Holiday Calendar.

References & Indicators

As mentioned in previous posts, read everything you can over at Lance Begg’s site, investopedia is always good for a bit of clarification, PeteFader’s threads on babypips and youtube videos are also a must.

Indicators

[ul]
[li]Market Sessions indicator available at New Market Sessions indicator - future sessions - I am Adam Jowett,
[/li][li]Murray Math S&R available at MetaTrader Forex Indicators, MT4/MT5 Indicators,
[/li][li]Round numbers S&R indi available at MT4 Round Number Indicator @ Forex Factory,
[/li][li]NSND indicator available at NSND MT4 Indicator | Abundance Trading Group
[/li][li]Forex calendar right on your chart, available here Forex Factory News indicator MT4 | Abundance Trading Group,
[/li]Candle Time Remaining - Candle Time Indicator for MT4 - Forex MT4 EA
[li] MT4 14 & 50 EMA,
[/li][li] MT4 Volume,
[/li][li] Position Size Calculator - Position Size Calculator for MetaTrader
[/li][/ul]

All the indicators above aren’t “necessary”, you could trade this strategy with a clean chart, but they do help to give the market context, and keep you aware of important times and prices during the trading session.

7

Here’s a nice example to kick the thread off.

[ol]
[li]Trend - 14ema < 50ema, short,
[/li][li]Opening Range (OR) - below, short,
[/li][li]S&R - broken through & pulled back to,
[/li][li]14ema - price pulled back to 14ema,
[/li][li]Volume - signs of No Demand,
[/li][/ol]

EU.jpg700×579 76.3 KB

8

Great thread jalapenoninja, count me in as a follower and hopefully a contributor. I have been looking at price action and volume in the lower time frames (principly the 5 m, 15 m and 30 m) where you can get some great risk reward ratios. I am really looking forward to seeing how this pans out.

Cheers

Daxter

9

Hey folks,

Each day I review the entire session for my three pairs, EURUSD, USDJPY and AUDUSD.

Below is the EURUSD, the yellow arrows indicating entries where I tick the box for trend, S&R, PDHL, OR, pullback to the 14ema and a lack of volume.

24th June EURUSD.jpg700×343 42.1 KB

10

Great thread! I enjoyed reading this introduction: very clear and full of info. I’m already checking my charts with the template :slight_smile:

Keep it up!

11

Hi Andy,

Thanks for following along. I have a friend and we discuss these setups via email, so I’ve tried to not leave anything out at all. Being a discretionary/price action based strategy, sometimes there won’t be any entries unfortunately! :slight_smile:

I’ll try to be as consistent with sticking to the guidelines in the first 6 posts as I can when posting trades. Glad the template worked, mine has a few extra bells & whistles but the basic one can do the job.

12

No trades for me this morning, AUDUSD is range bound and USDJPY hit the previous day’s low & bounced, offering a counter-trend entry (which I didn’t bother with).

thought I’d bring up this USDJPY chart as it’s a good example of price interacting with the previous day’s low and shows a good example of an objective trend change without any indicators. funnily enough our 14ema 50ema cross picked up the trend change quit nicely.

You could go long at the trend change, but you’d be buying into the low of the opening range, which for me is a low probability entry, much better waiting for price to pop up above the opening range and pullback.

PDL.jpg700×594 72.5 KB

13

Your system is uncannily similar to what I have been attempting to experiment with, between attending to the needs of my young son. I am in Thailand so the sessions I trade (demo) are similar to yours. I also use the 14 ema (my favourite) and 50 sma and have spent the last few months trying to get to grips with volume. I have watched Pete Faders no demand video on several occasions and this seems to be the easiest way to use volume. However, I have not used the previous days highs and lows and I will add these to my charts and see how it goes.

14

Good to hear :slight_smile: Truth my told (imo), it’s not really a “system”… just trading the price really :slight_smile:

I’d say anyone intra-day trading should have session times, news, S&R, opening range & previous day’s high & lows marked on the chart. I’ll be experimenting with removing the moving averages in the future, as the “objective” trend seems to suit a bit better.

Do you look at the NY session much? I find EURUSD not that great for the first couple of hours of NY.

15

Hi jalapenoninja, nice to see you made your own thread. Hope your method is going to be profitable. Yesterday I checked eurusd but on ibfx the no demand candle did not appear. Let’s see what next London session will bring.

16

Hey Pipfisher, check out my EURUSD chart from yesterday (301 Moved Permanently), I’ve marked all No Demand & No Supply candles with the trend in yellow.

17

Hi Jalapenoninja, I saw your EURUSD chart, but my broker did not display your third no demand, so be it. Keep up with the good work!

18

Good morning!
On MT4 build 646 the template was only plotting the MAs and volume indicators, and the MML_Multi_Option wouldn’t work.

So if any of you are having the same issue try these ones

basic5mtf.zip (25.9 KB)

19

The newest update of metaquote language make all indicators won’t work, and this must be compile again in new bulid metatrader…

20

love your strategie:) can u make a video?