November 4, 2015 at 3:26 pm
Ok, so today I want to concentrate on the smaller timeframes. Trading smaller timeframes is a little faster paced than the larger timeframe trading. Trading with small timeframes is great if you don’t have a lot of time to trade, or you get bored quickly staring at charts and not taking any trades. Trading with timeframes from 5 minutes and down will keep you busy, especially if you are trading more than one pair at a time.
Most of the time I will mark of levels on a large timeframe and then trade the levels on smaller timeframes. In these trading examples, I used the 5-minute chart to mark off my zones where I want to look for potential trades. After drawing in the levels, I go down to a 1-minute chart to look for entries. The reason I do this is because I get much better entry prices on a smaller timeframe than what I would have got on a bigger timeframe.
Ok, so if you take a look at Figure 1, you can see I marked off a few levels on the EUR/USD 5-minute chart. The first level is a swap level as indicated on the chart. A swap level is a level that acts as support and resistance. You can use this level for buying or selling opportunities. Have a look at Figure 2 and 3 for trading examples in this zone.
Figure 1 – Levels on EUR/USD 5-minute chart
The second level I marked was a 5-minute Demand Zone. This is a good zone as it has a lot going for it. When price initially left the zone, it easily broke through the swap level. The only way that price could break through this swap level so easily is if there were big buy orders in the market. Usually, if there are big orders at a level, not all of the orders will be filled the first time. This will cause the price to come back to the level and fill the rest of the orders sitting there. When the price reaches this level again, the market will go back in the original direction as we can see in the above chart. Refer to Figure 3 for trading examples in this demand zone.
First we take a look at 2 put trades in the Swap level as marked in Figure 1. Price pushed into the zone without forming any demand pockets on the way up. This is an extremely good sign. If there are no demand pockets being formed as the price is moving towards the supply zone, there is nothing in its way to stop it. I also spoke about this in my previous trading examples. We had multiple entries at our first arrow to enter a put trade. As you can see, after price left the swap level, the price dropped like a rock. This was a sure winner.
Figure 2 – Put trades inside the Swap Level
The second red arrow pointed out another potential put trade. I will typically only take one trade per zone as the orders that were there are decreasing. But in this case, I decided to take the second trade as well because I saw that the market sold off aggressively the first time when it entered this zone. If you compare the reaction of the first and second trade, you can see that the selling pressure is getting weaker. Knowing this, it was a little too risky for me to take a third put trade. In hindsight, it would have worked out but like you can see in Figure 1 and 3 price eventually broke through this swap level.
After price broke through the swap level price came back to test it again. I saw a small Pinbar form that indicated that prices were being rejected. This was not the best Pinbar, but it was enough confirmation for me to take a call trade. The trade worked out beautifully. I saw that prices moved away very slow from this level, so I decided not to trade this swap level again. Thankfully I made the right choice as prices just blew right through it when it reached the level again.
Figure 3 – Call Trades
After breaking the swap level, the next level I was looking at was the demand level on the 5-minute chart in Figure 1. As price approached this level, I saw a few supply zones being formed. I waited for the market to consume some of this supply with the first push from the demand zone. When the market came back into this level, I waited for some confirmation before entering. A perfect Engulfing bar formed right at the edge of the demand zone marked with the second green arrow. After seeing this, I immediately entered a call trade which ended up being another winner. I knew that the price was likely going to continue upwards, so I took a few more call trades. I did not mark them on the chart. See if you can find them 😉
All in all, it was a good trading session for me. As usual if you have any questions, just shout.