Using 5-Min Charts for Profits
Ascending Triangle on 5 - Min Chart
Tools Candlestick/Bar Chart and Volume(Color Coded). Since 5-min chart is extremely small time frame, I prefer not to use any oscillator or indicator.
Trade Setup The basics of this setup is very easy to understand. All you need to do is monitor selective stocks (futures based stocks) or the Index. The pattern to look out is usually a horizontal range on the top and higher lows on the bottom. This pattern is extremely effective and provides with good risk/reward ratio on 5-min chart. Essentially can be used as an effective swing trade strategy.Those with sizable cash in portfolios can choose futures stocks for this pattern (leverage advantage). I'll use a very recent example to demonstrate the use of the pattern.
Time Validity - I trade this pattern only on 5-Min chart. The reason behind this is based on my own research. Ascending triangles which occur on daily or weekly charts either dont complete fully or give false breakouts. On analyzing 5-min charts I found that these patterns are highly effective on this time frame.
When does it occur - This pattern can be found during consolidations when a stock pauses before moving higher. Higher bottoms in this pattern indicates bullish momentum being built up.
How to trade it - Refer to the chart below. What we see is that Aditya Birla Nuovo has recently finished a ascending triangle pattern. It formed a nice horizontal base (A,B and C) around 895 levels with it constantly forming higher bottoms (1,2,3,4,5,6,7). The stock eventually broke out from these levels and is trading at 909 currently. The ideal setup would be to buy on breakout only when there is huge increase in volume activity around breakout levels (refer chart).
Target - Add the range of the ascending triangle to the breaching level. In this case it would be the vertical distance between point 1 and A (roughly about 35 points).
STOPLOSS - Use point 7 as stoploss levels. We would ideally want the triangle to fall out completely before deciding that it is a false one.
Important Points - Along with the standard points mentioned above, there are a few points I would like to share in order to judge the strength of the pattern.
1) Strength of Horizontal Top Line - Ideally there should be atleast 2-4 points of contact made with the horizontal top line. In this case we have had 3 point of contacts marked as A, B and C.
2)Strength of Trendline - Number of point of contacts made with the trendline determine the strength of it. In our case we have 7 point of contact. This is brilliant. Ideally I would like to see 3-4 point of contact.
3) Strength of the points (A to C and 1 to 7) - We need to check whether these points are of any use or not. Plotting points is not difficult. However testing them is difficult and important. A simple way to do this is to monitor the volume activity. Look below each major point (1 to 7) how volume acivity picks up as soon as the price reaches the trendline. High volume at these points resemble force (demand) and hence make these points important. I have circled the volume activity underneath each point.
4) Strength of Pattern - When the above mentioned points are in place, then the only thing left to verify is the time of the breakout. Ideally the pattern must breakout before the lines converge. At point 7 the pattern is 70-75% complete and hence this is the right time of breakout.
Ultimately always remember that no pattern is fool proof. In this particular case we have found a very healthy pattern and we can just hope this blossoms into profit. I have huge positions in this stock. Hope this works
Those interested in using Moving Average systems (Price crossovers) to trade can use these Parameters for
ADITY BIRLA NUOVO (5 - min chart only)
Buy Average:60 EMA
Sell Average: 30 EMA
Short Average: 35 EMA
Cover Average: 5 EMA
Please note these settings are for Aditya Birla Nuovo
Only. If you want settings for other stocks then do let me know.
