Trading short term time frames and moving averges in a trend pt.1

When I was an active stock and e-mini S&P trader I used to set up my trades on five minute chart…I’m still an active e-mini S&P trader but I don’t find myself using the short term time frames like I used to…so I had to ask myself why the heck aren’t I!?!?

I originally wanted to call this update “The EASIEST Short Term, Intraday Trading, Charting Set Up EVER”. But I thought that was a little too obnoxious….

Short term time frames are an integral part of active intraday traders view as well as a great way to new traders to enter the market will less risk than — for example — a 60 or 240 minute chart. The longer the time frame, the larger to risk/reward ratio. Well, ofcourse, everyone loves more potential profit but not everyone can AFFORD the higher risk that usually comes with it!

I’ve shared this approach in my live presentations on a limited basis and thought I’d lay the groundwork for what I do on short term time frames to capture corrections in a trending market. Much of it should already be very familiar because it’s a variation of my swing trading approach and relies on the Wave for direction confirmation. So the first thing you’re going to need to do is set up a five minute chart with the 34ema on the high, low, and close.

The angle of the Wave on this chart shows that the 5 minute EUR/USD is in an uptrend, which means for the strategy I will be sharing here, the entries will be buys on pullbacks. But the use of the Wave in this strategy mainly for trend analysis and risk management.

11-4-2009 10-44-06 AM.gif

This chart with the Wave is THE MOST IMPORTANT part of the set up because you only want to be entering pullbacks during the mark up or mark down cycle. The lookback on the five minute chart is one day but you’ll find that just you’ll likely fit just less than that (probably 3/4 of the day) comfortably on your screen if your charts are small like mine are. The size I use here (below) is pretty much actual size on my monitors. You’re looking for the 34ema Wave to be heading up between 12 to 2 o’clock or between 4 and 6 o’clock. Any sideways market cycle means leave this set up alone!

By the way, you’ll notice I have the GRaB 2.0 plug-in running on my charts and you can get that free from my personal blog at RagheeHorner.com. You don’t need the GRaB plug-in to set up the 34ema on the high, the low, and the close but I did want to share the plug in with you regardless. Personally, I like the visual the GRaB offers me. GRaB simply stands for Green, Red, and Blue.

You’re going to need a second five minute chart, which we will set up the entry moving averages on as well as the stop loss moving averages. Like most MAs I use, they too will be Fibo based. That’ll be in part two.

10 comments

  1. pipbull

    Just wanted to point out that, in my opinion, it can be misleading to newer traders to suggest that larger time frames comes with higher risk. While it’s true that both stop losses and profit targets are wider, higher stop loss does not have to equate to higher risk. Traders simply need to adjust their position size down when trading higher time frames so that the dollar value of any losses remains the same on a relative basis, regardless of time frame. Stop loss says nothing about trade risk – position size does.

    Reply
  2. Queen Cleopiptra

    I certainly don’t disagree with you thoughtful comment but it does presume that a trader is entering with multiple lots. I am trying not to operate form that assumption for the sake of this particular article. Generally speaking, if a trader is entering with just one lot in a 15 minute or a daily chart then the 15 will have a smaller expected profit target and a smaller expected loss based upon expected pip movement and the support/resistance on that chart. From my experience new traders will usually trade a single lot.

    But to the larger point you were making: You are 100% right, position sizing will play a role in the risk but does not effect the reward e.g. I will not take a smaller/larger position size based upon the expected profit but rather the overall ratio…and more specifically based on what I can afford to risk. Again, you make a very important point to traders who are taking trade with multiple lots.

    In fact, your comment comes at a perfect time because in part two of this I am going to talk about trading times and the expected trading ranges during those times.

    Thank you for your comment Pipbull…great name by the way ;)

    Reply
  3. pipbull

    Just wanted to point out that, in my opinion, it can be misleading to newer traders to suggest that larger time frames comes with higher risk. While it’s true that both stop losses and profit targets are wider, higher stop loss does not have to equate to higher risk. Traders simply need to adjust their position size down when trading higher time frames so that the dollar value of any losses remains the same on a relative basis, regardless of time frame. Stop loss says nothing about trade risk – position size does.

    Reply
  4. Queen Cleopiptra

    I certainly don’t disagree with you thoughtful comment but it does presume that a trader is entering with multiple lots. I am trying not to operate form that assumption for the sake of this particular article. Generally speaking, if a trader is entering with just one lot in a 15 minute or a daily chart then the 15 will have a smaller expected profit target and a smaller expected loss based upon expected pip movement and the support/resistance on that chart. From my experience new traders will usually trade a single lot.

    But to the larger point you were making: You are 100% right, position sizing will play a role in the risk but does not effect the reward e.g. I will not take a smaller/larger position size based upon the expected profit but rather the overall ratio…and more specifically based on what I can afford to risk. Again, you make a very important point to traders who are taking trade with multiple lots.

    In fact, your comment comes at a perfect time because in part two of this I am going to talk about trading times and the expected trading ranges during those times.

    Thank you for your comment Pipbull…great name by the way ;)

    Reply
  5. glide21

    I don’t see much difference in the risk factor for short or long term trades, risk is based on position sizing and not time imo. I mostly trade the short term as I feel more comfortable with it and I often execute over 100 trades a day. At the same time I do enter longer term trades (over 1 hour) based on different methods/systems. I believe that each individual must know his own psychology and trade accordingly.

    Reply
  6. glide21

    I don’t see much difference in the risk factor for short or long term trades, risk is based on position sizing and not time imo. I mostly trade the short term as I feel more comfortable with it and I often execute over 100 trades a day. At the same time I do enter longer term trades (over 1 hour) based on different methods/systems. I believe that each individual must know his own psychology and trade accordingly.

    Reply
  7. Lordpipi

    I strongly believe that it all depends on what each trader is comfortable with….Trading on 1 hour chart could be rewarding,making as much as 200 pips on a trade, but again the lot size determines wot the whole pips made on that trade worth. Other traders could also trade on a 5 minutes chart and make 30 to 50 pips and again their lot size brings home the goodies….its all about the psychology of the trader…Some traders dont feel comfortable taking positions and going to sleep after puting their stop loss and profit…., while others cant stand seeing a -200 pips on their system even if there are great potentials of that trade to turn into 500 pips….The simple way out of this is that rule given at the Oracle of Delphi….”Man, know thyself”

    Reply
  8. Lordpipi

    I strongly believe that it all depends on what each trader is comfortable with….Trading on 1 hour chart could be rewarding,making as much as 200 pips on a trade, but again the lot size determines wot the whole pips made on that trade worth. Other traders could also trade on a 5 minutes chart and make 30 to 50 pips and again their lot size brings home the goodies….its all about the psychology of the trader…Some traders dont feel comfortable taking positions and going to sleep after puting their stop loss and profit…., while others cant stand seeing a -200 pips on their system even if there are great potentials of that trade to turn into 500 pips….The simple way out of this is that rule given at the Oracle of Delphi….”Man, know thyself”

    Reply

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