Trading The Opening Five Minute Candle

October 1, 2016 0 Comments

UPDATE 3/26/2015 – Added Video example from recent trade. We do these trades every day in the trading room.

 

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There are many ways that a trader can trade the opening bell. One strategy that I like to use to trade it is the opening five minute candle. If you have been following this blog and our trades you will hear the opening five minute candle mentioned a lot. We trade it frequently. Here is the process that I use.

#1 I identify my bias for the open. As an example, if the futures are coming up off a bottom as they did last Friday then I have a bias to the upside. There maybe situations where your bias is different than the market. I teach my students how to scan for stocks both on the short side and long side to play the opening five minute candle.

#2 Let the first five minute candle play out. Just watch it. (There are times when you will want to trade the candle before it plays out but that is a more advanced topic.)

#3 Draw a line at the top and bottom of the candle. I have a script that does this for me in TOS. Basically you are bracketing the first five minute candle.

#4 Remember you set a bias as to the direction. If the next candle breaks the five minute candle in the direction of your bias then you go long or short in that direction.

#5 Stop is a break below the first 5 min candle if long or a break above the first five minute candle if short. (If the range of the first five minute candle is too large then I skip the trade or adjust my stop.)

Let’s take a look at IWM this past Friday.

iwm

My bias on Friday was to the upside due to the fact that the futures were coming off a bottom. So I was only interested in a trade to the upside. The first five minute candle sold off and established a trading range. The green and red lines are the trading range. The top of the range was 105.87. On a break of that I went long calls on IWM. IWM then proceeded to rally another $1.

Here was my trade on IWM:

IWM OCT 10 2014 105.5 Call Limit 0.69 — — 09:36:53 10/10/14
IWM OCT 10 2014 105.5 Call Limit 1.22 — — 09:41:24 10/10/14

That was a 77% win. Time in trade was about five minutes. If you were not an options trader you could have caught an easy $1 move in IWM in that time frame.

Below I am showing some other examples of how the opening five minute candle played out on Friday using AAPL, FB, GOOGL, GPRO, IBB, LNKD, QQQ, SPY, TWTR, and V as examples.

As you can see some setups were better than others. Take time to study the system. Learn. Study. Win.

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