“Trading and markets can be all consuming – they take as much time as an individual is willing to give. Many experienced traders work to reduce the amount of time spent in front of a screen. However, very few are able to reduce the time spent on trading to five minutes a day – but it is possible.”

That’s how the “Five Minute a Day Trading” program began. Using intraday data, we searched for market quirks for traders to exploit. This resulted in the first 5MADT experiment – testing “live” the idea that the early direction in European trading of EUR/USD was often reversed over the rest of the day.

Market data on EUR/USD was cut and sliced to come up with a trading approach based on placing two orders, both with attached stop loss and take profit orders. We followed the system mechanically every trading day back in August 2012. The trades and results were tracked each day on the CMC Markets Blog. You can read how the trading unfolded by searching this blog using the term “five minutes”.

The trader also creates price alerts at the two entry levels (7,541.6 and 7,514.6) as an additional reminder when a trade occurs to cancel the other order.

At 7.23 pm, the BUY is triggered (order 1). The trader receives an alert, and cancels the SELL order (order 2).  As there are attached stop loss and take profit levels attached to order 1, there is no further action required.

At 9.01 pm, the take profit level is hit (while the trader is at dinner with friends), and the position closed for a 35 pip profit.

This is a single day example, and the stop loss target will (most likely) be hit on more trading days than the take profit. The reason the trader expects to make profit from the strategy is the 35 pips won on successful trades exceeds the 11 pips lost on unsuccessful trades.

Risks and Rewards

The average loss in unprofitable months in the study:     98.5 pips

The average win in profitable months in the study:     142.5 pips

Monthly win to loss ratio:     4 to 1

While an extreme result is far less likely, it’s worth considering the theoretically possible.

Maximum possible loss (0 profitable trades out of 22): 242 points

Maximum possible profits (22 profitable trades out of 22): 770 pips

Slippage is another risk. Slippage commonly occurs in fast, illiquid markets. The Germany 30 is a highly liquid, globally traded index. This should limit slippage impacts. Traders concerned they may miss trades can use the “boundary” facility on the platform to ensure that a stop entry order trades in all but the fastest market conditions. This function can also be used for stop loss and take profit orders.

Gap risk is also a possibility. On the occasions where a trade is not closed before the end of the trading session at 8 am the following day (occurring on 4 days out of 211 in the study) the trade is exposed to any gap in levels between the closing price of the Germany 30 index and the open price of the next session. Traders may wish to take a minute to check their positions in the last half hour of the session (7.30 am to 8 am)

Perhaps a greater risk to the strategy is failing to place the trade. Missing just one profitable trade can have a significant impact on the result. Traders successfully using this method must make every effort to trade all of the days in the month.

Similarly, the study assumes that each trade is the same size – varying the size of trades could also materially alter the results.

The Plan

We’ll follow this trade over the month of February, placing the trades each day at 7.14 pm, and posting the levels and the result each morning. Look out for regular updates on the blog.