Sub Minute Trading By Nathan
Ok then, lets outline how this strategy works. Charts to come later.
As explained in my previous post, this strategy focuses on taking small profits from the best reversal formations at Support and Resistance on 5 second charts throughout a trading day. The short term sub minute ideas I outline are transferable to other strategies to some extent, such as breakouts. I chose not to outline these as stop loss points are easier to define using this S&R reversal strategy that follows.
In capable hands it is a low risk and high reward method of trading. The main principle is that price momentum is easier to predict in the very short term.
Posting charts as examples will not provide much help as this is not for beginners. However examples of S&R using price action on larger time frames can be found in the documents throughout this thread for referral. A previous knowledge of S&R is an absolute must.
Following is a sample hypothetical trading plan. Stop loss points are 1 pip below/above the support/resistance areas that from on 5 second charts. At first glance the concept of this seems very simple, and it is. I am going to try and demonstrate the paramount importance of trade management. Firstly outlined is an initial trading plan. Following this will be 5 different examples of a trading week of varying successes.
Example trading plan.
Account balance : $20,000
Leverage : At least 20:1
Average maximum net risk per trade : 5 pips (After spreads, slippage)
Planned net risk per trade : <2.8 pips (After only spreads of <1.8)
Profit taking : 4-6 pips (2.2 - 4.2 net)
Maximum Percentage of account risked : 0.5
Maximum $ risk : $100
Per pip $ value : $20 ($100/5 pips)
Approx units : 200,000
Win percentage needed to break even : Using average loss of 2.8 pips, average win 2.2 pips : 56 %
As soon as account balance reaches $21,000 increase pip value to $21, $22,000 increase pip value to $22, $23,000 to $23 etc etc.
Eg. At account balance of $20,000 it takes 50 pips profit to reach $21,000
When account balance reaches $30,000 it takes 33 pips profit to reach $31,000
Similarly when account balance falls $1000, reduce pip value by $1
Example week 1a)
Competent trader of reversals at Support and Resistance
Taking profits quickly after 4 pips, losses quickly after 1 pip
50 trades
0.5% account risked
Account balance : $20,000
$ per pip : $20
60 % win rate
30 wins, 20 losses
Daily average: 6 wins, 4 losses
Average pip profit per day : (6 x 2.2) – (4 x 2.8) = (13.2 – 11.2) = 2 pips
Weekly pips : 10 (5 x 2 pips)
Weekly Profit : $200
Example week 1b)
Competent trader of reversals at Support and Resistance
Using discretionary trailing stop for larger average gross gains of 5 pips, losses still taken after 1 pip gross
50 trades
0.5% account risked
Account balance : $20,000
$ per pip : $20
60 % win rate
30 wins, 20 losses
Daily average: 6 wins, 4 losses
Average pip profit per day : (6 x 3.2) – (4 x 2.8) = (19.2 – 11.2) = 8 pips
Weekly pips: 40 (5 x 8 pips)
Weekly Profit : $800
Example week 1c)
Experienced trader of reversals at Support and Resistance
Still using discretionary trailing stop for larger average gross gains of 5 pips, losses still taken after 1 pip gross
50 trades
0.5% account risked
Account balance : $20,000
$ per pip : $20
Higher 70 % win rate
35 wins, 15 losses
Daily average: 7 wins, 3 losses
Average pip profit per day : (7 x 3.2) – (3 x 2.8) = (22.4 – 8.4) = 14 pips
Weekly pips: 70 (5 x 14 pips)
Weekly Profit : $1400
Example week 1d) (The Dangers)
Inexperienced trader of reversals at Support and Resistance
Taking profits quickly after 4 pips, losses run further than expected to 2 pips
Can only maintain a win rate of 50 %
50 trades
0.5% account risked
Account balance : $20,000
$ per pip : $20
50 % win rate
25 wins, 25 losses
Daily average: 5 wins, 5 losses
Average pip profit per day : (5 x 2.2) – (5 x 3.8) = (11 – 19) = - 8 pips
Weekly pips : -40 (5 x -8 pips)
Weekly Profit : - $800
Example week 1e) (The Dangers)
Incompetent trader of reversals at Support and Resistance
Taking profits quickly after 4 pips, losses run further than expected to 3 pips (Due to slow reactions)
Can only maintain a win rate of 40 %
50 trades
0.5% account risked
Account balance : $20,000
$ per pip : $20
40 % win rate
20 wins, 30 losses
Daily average: 4 wins, 6 losses
Average pip profit per day : (4 x 2.2) – (6 x 4.8) = (8.8 – 28.8) = - 20 pips
Weekly pips : -100 (5 x -20 pips)
Weekly Profit : - $2000
Hopefully these 5 examples will show the extraordinary profits available to experienced price action traders, but also the scary losses that an inexperienced trader could incur. These losses will happen if the trader :
• Consistently fails to close losing positions immediately
• If the trader has no experience at finding possible support and resistance
• If they cannot differentiate between probable successful and unsuccessful S&R
• If they do not learn for their specific currency pair/stock/index how prices act at these levels of S&R
• If they cannot handle the pace of placing trades using a 5 second chart, often exiting the position in the same minute
• If they cannot handle the psychological effects that come with leverage, possibly trading position sizes upwards of 500,000 (Forex)
• If they trade in unsuitable market conditions, for example a trading range between S&R that is too tight to meet profit targets (Often found after hours and in other periods of low volume)
In summary, this very short term method of trading should be treated with extreme caution, the high quantity of trades per week can mean a rapid deterioration of an unsuccessful traders account balance. The obvious benefit to a successful trader is a rapid increase in account balance when using the compounding method outlined.
The good news is that some of these skills can be learned with many many hours of 5 second chart watching. Some traders will never be able to master this however if naturally they do not have the reactions and brain capacity to interpret and act on such a large quantity of information in a matter of seconds.
Getting into the trade is the easy part as you already know where S&R should most probably reform. When in the trade however you will often only have seconds to make a decision, delayed reactions could therefore lose a pip here and there on every trade. Is losing a pip here and there a big deal? Check out scenario 1e) and then decide if this is for you.
I will post a few 5 second charts, but as explained this method is very discretionary and will vary massively in success from individual to individual.
As always I am not recommending that you try this method as it is very dangerous in the wrong hands, but hopefully it gives some insight into this little discussed area of trading on extremely short term price action.
Hope this has been useful
Thanks
Nathan
This post can also be read in MsWord format. Attached
