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One of the most common challenges for traders is finding the time to trade the markets. However, behavioural analysis suggests there is not a direct relationship between time in front of the screen and profitability.
When the principles of successful trading are applied, time trading the market can be significantly reduced — to as little as five minutes a day. This track record does not guarantee a profit this month — four of the five studies showed losing months. Nonetheless, this small sample shows that identifying market patterns, and then applying good trading strategy, can deliver profits.
The campaign is based on a straightforward idea — the opening moves in UK trading indicates the market direction for the day often enough for traders to profit. Experienced traders know that long term profitability is a function of two key ratios — the percentage of trades that are successful, and the realised profit to loss ratio. The following table shows this time in various cities during February:. These times will change as daylight savings ends in the southern hemisphere and commences in the north.
The analysis shows that the combination of a 2. Both orders have an attached stop loss 7 points away, and a take profit order 16 points away. This means that traders employing the 5MADT strategy will observe the closing price of the 1 minute candle on the mid chart at 10 minutes past the hour, and use this candle closing as the reference price to set the levels for the buy and sell stop entry orders. A stop entry order is an order to buy above current market price, or sell below. The order is triggered when the market reaches the specified price.
Setting the boundary at the same price as the trigger ie 0 points may result in the order not being filled in a moving market. The size of the boundary is up to individual traders, but the analysis suggests that a 1 point boundary will cover most of the days in the study period.
Care should be taken in examining the results above and the table below — past performance is not necessarily a guide to future returns.
As the table shows, this strategy was profitable in five of the last six months — but the wins and losses are not symmetrical.
The wins are generally larger than the losses, and the net result is a total gain of points. In a month of 20 trading days, just 7 profitable trades will deliver a profit for the month.
In months such as October, where 13 of 23 trades are profitable, the gain is significant. Similarly, months like September, where only 4 trades of 21 made a profit, the result is a loss. This analysis was run on January 30 — meaning the results for January do NOT include the last two days of the month. At the close of the 7.
Stop loss at The trader also creates price alerts at the two entry levels The trader receives an alert, and cancels the BUY order order 1. As there are attached stop loss and take profit levels attached to order 2, there is no further action required. 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 16 points won on successful trades exceeds the 7 points lost on unsuccessful trades. Slippage is another risk. Slippage commonly occurs in fast, illiquid markets. The UK Index is a deep market, with higher liquidity levels, especially in the first hour of trading. This should limit slippage impacts. While slippage is still possible, it is unlikely to materially alter the results. 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.
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So far, four from four 5MADT campaigns have delivered a monthly profit: The following table shows this time in various cities during February: The Method The analysis shows that the combination of a 2. Market Analysis Results Care should be taken in examining the results above and the table below — past performance is not necessarily a guide to future returns.
The Example At the close of the 7. A trader using this method would place two orders: Risks and Rewards The average loss in unprofitable months in the study: Maximum possible loss 0 profitable trades out of Open a stockbroking account Access our full range of stockbroking products, share trading tools and features.