We have had a lot of questions about using the 5 minute and 15 minute moving averages intraday as short-term trading signals in a volatile market that makes riding positions for weeks at a time (our real preference) much more difficult (at least upside plays).
You need a realtime service to use this method effectively. Set your interval chart moving averages to 5 minutes and 15 minutes. Then you are set to start looking for entry and exit points to the upside and the downside.
Let’s take a look at Friday’s action on the Nasdaq for example in order to talk about the first part of the equation, i.e., figuring out whether we are going to enter upside or downside trades (I am doing this in hindsight as I was indisposed; the pattern, however, repeats over and over, day after day). The session gapped higher as the futures indicated it would, and then ran up another 20 points in the first five minutes. It then turned right back down to test that open over the next 15 minutes, finding support at 2820.91, close to the previous session’s open. It turned up from there. Often you will see a previous closing price (usually) or an opening or intraday high price (on a gap higher) act as support. After that test, the Nasdaq turned right back up and gapped higher 25 minutes into the session; that is a very bullish move. Still, however, there was still the high on the open at about 2838 that could act as resistance to a move up. If it cleared that point, it had not resistance from the highs this session. The Nasdaq ran right up to the high on the first run of the day and then went nowhere for 5 minutes. Then it exploded above that point. That was the first key; it looked like a very bullish move was ahead, and we could start taking upside positions for the day.
After establishing a position, we start looking at intraday support levels just as we look at them on daily charts representing much longer time periods. It does not matter what the time period, stocks behave the same what intraday or over several months. On the Nasdaq example above, we would look at the high on the opening run as support after the Nasdaq broke that level on the subsequent move higher. After that, we would start watching the 5 and 15 MVA’s intraday. What we want to see is the stock or index move just as it would in a daily chart, i.e., rise above the 15 minute MVA, then pullback to it and bounce right back up, making a series of ascending pyramids moving up the 15 minute MVA. Likewise, we watch the 5 minute MVA as it smoothes out the individual prices and shows us more of the trend. As long as that 5 minute MVA keeps bouncing off the 15 minute MVA and moving higher, we are in a very bullish trend.
If the stock dips below the 15 minute MVA, that is not an automatic sell signal as the 5 minute may never break that level and the stock continues to move up. Even if the 5 minute MVA breaks below the 15 minute, that is not an automatic sell signal. When the latter happens, what you look for is a test of the 15 minute MVA by the 5 minute MVA. If the 5 minute moves back up and taps the 15 minute but cannot break through it again, that is a sell signal. If it breaks back above the 15 minute MVA and continues higher, hang on. CIEN’s 5 minute MVA broke the 15 minute MVA Friday at 11:10 CT. The stock would not drop below 98.50, however, and the 5 minute MVA moved sideways and then broke back over the 15 minute MVA at 11:30 and the stock then shot back up. It is important to wait for the test to see if it passes or fails before acting. That helps eliminate those unpleasant surprises, and it is our favorite way of making intraday plays. Let the stock pass or fail the test, and then take action. If you are looking to get in after the 5 minute breaks over the 15 minute MVA, let the 5 minute test the 15 minute, and if it bounces off and back up, that is the entry signal.
